QBI Deduction for S-Corp Clients: How Salary Changes the §199A Math

The QBI deduction S corp owners claim turns on one line in the firm's planning memo: the owner's salary. That salary does two things to §199A at once. It isn't qualified business income, and the corporation's deduction for it lowers the QBI that flows through to the owner. Above the threshold, the same wages also count toward the W-2 wage limit.

So the salary a Reasonable Compensation Study supports moves the QBI number, and the direction depends on where taxable income lands. The order holds throughout: the Study documents the evidence behind the compensation conclusion, the Reviewer signs off, and QBI follows from that salary.

This guide is for the firm that runs that math across a book of S-corp clients: the tax partner who signs the planning memo, the preparer who builds the return, and the Reviewer who ties it out. It works three households through the 2026 bands, each for a specified service business and a non-service business, then shows the W-2 wage crossover, a salary sensitivity table, the more-than-2% shareholder health insurance question, a Reviewer tie-out checklist and a memo paragraph your firm can paste. Every rule cites the subsection it comes from. Where a source wasn't available to read, the text says so.

What is the QBI deduction for an S-corp owner? It's a deduction of up to 20% of the owner's share of qualified business income from the S corporation, under IRC §199A(a), limited to 20% of the amount by which taxable income exceeds net capital gain. OBBBA (Pub. L. 119-21) removed the scheduled end date. The owner's reasonable compensation is not QBI, and the S corporation's deduction for that wage reduces QBI (26 CFR §1.199A-3(b)(2)(ii)(H)). Above the 2026 threshold ($403,500 married filing jointly; $201,750 for most other filers), the W-2 wage limit and the specified service trade or business (SSTB) rules begin to phase in (Rev. Proc. 2025-32 §4.26). Rules as of 2026-09-26. Not tax advice.

Key Takeaways

• 20% of QBI: the §199A deduction is up to 20% of qualified business income (IRC §199A(b)(2)(A)); OBBBA (Pub. L. 119-21) removed the scheduled end date.
• Overall cap: the deduction can't exceed 20% of the amount by which taxable income exceeds net capital gain (IRC §199A(a)(2)).
• Salary is not QBI: the S corp's wage deduction reduces QBI (26 CFR §1.199A-3(b)(2)(ii)(H)).
• 2026 thresholds: $403,500 MFJ and $201,750 for most other filers, with the range ending at $553,500 and $276,750 (Rev. Proc. 2025-32 §4.26).
• Crossover at 2/7: for a non-SSTB above the range with no qualified property, 20% of QBI equals 50% of W-2 wages when salary is 2/7 of pre-salary profit (about 28.6%), before employer payroll tax.
• Salary floor first: reasonable compensation is the floor, so the §199A math only runs on salaries at or above what the Study supports; that salary is excluded from QBI (IRC §199A(c)(4)(A)).

What this guide covers, and what it leaves to other pages

This page starts after the salary decision. How the owner's pay divides between wages and distributions is covered in S-corp salary vs. distribution. What makes a salary reasonable in the first place is covered in what is a reasonable salary for an S corp. The wider planning deliverable, with its six sections, is in the S-corp tax planning memo, and every related guide sits in the tax planning hub.

What's left is the question your firm owns once the salary is set: the S corp owner salary QBI interaction. What does that salary do to the §199A S corp computation, and can the file show the math?

What counts as QBI for an S-corp owner

QBI is the net amount of qualified items of income, gain, deduction, and loss from a qualified U.S. trade or business (IRC §199A(c)(1), (3)). For an S-corp owner, the K-1 share of ordinary business income is usually the main piece, figured after the wages the corporation pays the owner.

Not every K-1 item counts. Capital gains and losses, most interest, dividends, and other investment items are excluded (IRC §199A(c)(3)(B)). Some owner-level deductions tied to the business can reduce QBI, but only to the extent the individual's gross income from the business is taken into account in figuring the deduction (26 CFR §1.199A-3(b)(1)(vi)). A more-than-2% shareholder's self-employed health insurance deduction is figured against the owner's S-corp wages (IRC §162(l)(5)(A)), and those wages aren't QBI, so the file should document whether it reduces QBI; the health insurance section below covers this. Retirement contributions the S corp makes as the employer are deducted by the corporation, so they reduce QBI there. The K-1 and its §199A statement get read item by item.

IRC §199A(c)(4)(A) excludes reasonable compensation from QBI, and 26 CFR §1.199A-3(b)(2)(ii)(H) confirms the corporation's deduction for that wage still reduces QBI, to the extent the deduction is properly allocable to the business and otherwise deductible.

Distributions add nothing; they're cash out of income the K-1 already counted. For §199A, owner wages are one input; the final deduction also depends on taxable income, net capital gain, SSTB status, W-2 wages, UBIA, and the character of the business's income.

The formula, in the order a Reviewer checks it

For one business, the statute builds the deduction in four steps. The worked households below follow the same order.

1. The 20% amount. 20% of QBI from the business (IRC §199A(b)(2)(A)).
2. The wage limit. The greater of 50% of W-2 wages, or 25% of W-2 wages plus 2.5% of the unadjusted basis immediately after acquisition (UBIA) of qualified property (IRC §199A(b)(2)(B)). Below the threshold this step is skipped (IRC §199A(b)(3)(A)). Inside the range it phases in. Above the range the QBI component is the lesser of steps 1 and 2.
3. The SSTB percentage. For a specified service business inside the range, only the applicable percentage of QBI, W-2 wages and UBIA is taken into account (IRC §199A(d)(3)(A)). Above the range, a specified service business isn't a qualified trade or business at all (IRC §199A(d)(1)(A)).
4. The overall cap. Whatever the QBI component comes to, the deduction can't exceed 20% of the amount by which taxable income (before the QBI deduction) exceeds net capital gain (IRC §199A(a)(2)).

Owner wages properly reported on Form W-2 and allocable to the qualified business generally count toward step 2 (IRC §199A(b)(4); 26 CFR §1.199A-2). So salary pulls two ways: it cuts QBI, lowering the 20% figure, and raises the wage limit. The QBI component can rise or fall with salary, depending on which number is smaller.

The 2026 bands

For 2026 the threshold is $403,500 married filing jointly, $201,775 married filing separately, and $201,750 for all other returns. The range ends at $553,500, $276,775 and $276,750 (Rev. Proc. 2025-32 §4.26).

Below the threshold. At or under the threshold, the W-2 wage limit doesn't apply and SSTB status doesn't matter. In that zone, ignoring payroll tax and other wage-linked costs, every dollar of salary lowers QBI by a dollar, so the 20%-of-QBI figure drops 20 cents per salary dollar. The final deduction may not move the same way, because the overall cap or the $400 minimum can take over.

Inside the range. The range is $150,000 wide for joint filers and $75,000 for other filers. The wage limit phases in proportionally: 20% of QBI is reduced by the amount it exceeds the wage-limited figure, multiplied by the share of the range that taxable income has crossed (IRC §199A(b)(3)(B)). If the wage-limited figure is already at or above 20% of QBI, there's no reduction. For an SSTB, the applicable percentage is 100% reduced by that same share of the range (IRC §199A(d)(3)(B)), and it applies first, to QBI, W-2 wages and UBIA alike.

Above the range. The wage limit applies in full. A specified service business produces no QBI deduction.

A specified service trade or business is one in health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investing and investment management, trading, or dealing in securities, partnership interests, or commodities (IRC §199A(d)(2); 26 CFR §1.199A-5(b)(1)). The statute also lists businesses whose principal asset is the reputation or skill of employees or owners, but the regulations narrow that to endorsement income, fees for licensing an individual's name, image, likeness, voice, or other symbols of identity, and appearance fees (26 CFR §1.199A-5(b)(2)(xiv)). Consulting, health and accounting businesses are common in S-corp books, so the SSTB flag is worth settling in the file before any band math runs.

What OBBBA changed

Three changes from OBBBA (Pub. L. 119-21) show up in 2026 files.

• No end date. The deduction was scheduled to expire after 2025. OBBBA removed the sunset, so the deduction continues for 2026 and later years.
• A wider range. The phase-in range is now $150,000 for joint returns and $75,000 for other returns (IRC §199A(b)(3)(B), (d)(3) as amended by OBBBA; Rev. Proc. 2025-32 §4.26). Under the prior law it was $100,000 and $50,000. A client can now sit further past the threshold before the wage limit applies in full.
• A $400 minimum. Starting with tax year 2026, a taxpayer whose aggregate QBI from all active qualified trades or businesses in which they materially participate is at least $1,000 gets a minimum deduction of $400 (IRC §199A(i), added by OBBBA; Rev. Proc. 2025-32 §2.12). Material participation has the §469(h) meaning (IRC §199A(i)(2)(B)). Losses from another active business count against the $1,000. For tax years beginning after 2026, both the $400 and the $1,000 are indexed for inflation (IRC §199A(i)(3)).

The minimum matters most for small S corps where salary absorbs most of the profit. It doesn't lift a deduction that's already above $400.

Three worked households, one per band

Illustrative example. Each household files jointly for 2026 and owns 100% of one calendar-year S corporation. The owner is the only employee. The corporation has no qualified property, so UBIA is $0, and the 25%-plus-2.5% alternative in the wage limit is never the larger figure. There's no net capital gain. The K-1 QBI shown is after the corporation deducts the owner's salary and its share of payroll tax. Each household has $30,000 of other deductions, so taxable income before the QBI deduction is the W-2 wages plus the K-1 QBI, minus $30,000. Each household is run twice: once as a non-SSTB (say, a trades or distribution business) and once as an SSTB (say, a consulting practice) with the same numbers.

In every case the salary is the figure a Reasonable Compensation Study supports. It's an input here, never an output.

Household A: below the threshold

The Study supports a salary of $100,000. K-1 QBI is $170,000. Taxable income is $100,000 + $170,000 − $30,000 = $240,000, which is under $403,500.

• 20% of QBI: 20% × $170,000 = $34,000.
• Wage limit: doesn't apply below the threshold (IRC §199A(b)(3)(A)).
• SSTB: doesn't matter below the threshold, so the SSTB version is identical.
• Overall cap: 20% × $240,000 = $48,000.
• Deduction: the lesser of $34,000 and $48,000, so $34,000 for both versions.

Household B: inside the phase-in range

The Study supports a salary of $120,000. K-1 QBI is $388,500. Taxable income is $120,000 + $388,500 − $30,000 = $478,500. That's $75,000 past the $403,500 threshold, and $75,000 ÷ $150,000 = 50% of the way through the range.

Non-SSTB version:

• 20% of QBI: 20% × $388,500 = $77,700.
• Wage limit: 50% × $120,000 = $60,000.
• Excess: $77,700 − $60,000 = $17,700.
• Phase-in reduction: $17,700 × 50% = $8,850 (IRC §199A(b)(3)(B)).
• QBI component: $77,700 − $8,850 = $68,850.
• Overall cap: 20% × $478,500 = $95,700.
• Deduction: the lesser of $68,850 and $95,700, so $68,850.

SSTB version:

• Applicable percentage: 100% − 50% = 50% (IRC §199A(d)(3)(B)).
• QBI taken into account: 50% × $388,500 = $194,250. W-2 wages taken into account: 50% × $120,000 = $60,000.
• 20% of QBI: 20% × $194,250 = $38,850.
• Wage limit: 50% × $60,000 = $30,000.
• Excess: $38,850 − $30,000 = $8,850.
• Phase-in reduction: $8,850 × 50% = $4,425.
• QBI component: $38,850 − $4,425 = $34,425.
• Overall cap: $95,700.
• Deduction: $34,425.

The SSTB rule does most of the damage here. The applicable percentage halves QBI and wages before the phase-in reduction even starts.

Household C: above the range

The Study supports a salary of $180,000. K-1 QBI is $500,000. Taxable income is $180,000 + $500,000 − $30,000 = $650,000, past the $553,500 end of the range.

Non-SSTB version:

• 20% of QBI: 20% × $500,000 = $100,000.
• Wage limit: the greater of 50% × $180,000 = $90,000, or 25% × $180,000 + 2.5% × $0 = $45,000. The limit is $90,000.
• QBI component: the lesser of $100,000 and $90,000, so $90,000.
• Overall cap: 20% × $650,000 = $130,000.
• Deduction: $90,000.

SSTB version: above the range the consulting practice isn't a qualified trade or business (IRC §199A(d)(1)(A), (d)(3)). QBI taken into account is $0, so the deduction is $0. The $400 minimum reaches only QBI from active qualified trades or businesses (IRC §199A(i)(2)), so on this reading it doesn't apply to this household.

The six results side by side

The overall cap didn't bind in any of the six. It binds when QBI is large relative to taxable income, for example when the household has large other deductions or a loss from another activity. Actual results vary based on income, industry, and state.

The W-2 wage crossover: a diagnostic, not a salary rule

Household C shows the tension above the range. Salary lowers the 20% figure and raises the wage limit. For a non-SSTB with no qualified property, the two meet at one salary.

Assumptions: taxable income is above the end of the range at every salary tested, UBIA is $0, the owner is the only employee, and there's no employer payroll tax (this version ignores it). Call pre-salary profit P and salary W. QBI is P − W.

20% × (P − W) = 50% × W 0.2P − 0.2W = 0.5W 0.2P = 0.7W W = 2/7 × P, about 28.6% of pre-salary profit

Below that salary, the wage limit is the smaller number and binds. Above it, 20% of QBI is the smaller number and binds. At a pre-salary profit of $700,000, the crossover salary is 2/7 × $700,000 = $200,000: QBI is $500,000, and 20% of it is $100,000, exactly 50% of $200,000.

With employer payroll tax. Employer FICA is also a corporate deduction, so it reduces QBI too. Below the Social Security wage base ($184,500 for 2026), the employer share is 6.2% plus 1.45%, or 7.65% of salary. QBI becomes P − W − 0.0765W, and the equation becomes:

0.2 × (P − 1.0765W) = 0.5W W = 0.2P ÷ 0.7153, about 27.96% of pre-salary profit

At a pre-salary profit of $500,000, that moves the crossover from $142,857 without payroll tax to $139,801 with it. Above the wage base, only the 1.45% Medicare share keeps growing, so the ratio drifts back up: at $800,000 of pre-salary profit the crossover is $224,374 (about 28.05%) against $228,571 without payroll tax. Those figures ignore state unemployment tax and any other wage-linked cost.

Read the crossover as a diagnostic. It tells the Reviewer which prong is binding at the salary the Study supports. It doesn't tell anyone what the salary should be.

Reasonable compensation is the floor

The Code settles the order. Reasonable compensation paid to the owner isn't QBI (IRC §199A(c)(4)(A)), and the owner's salary has to be reasonable compensation for the services performed. The 1120-S instructions put it directly: distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered (Instructions for Form 1120-S, line 7).

So the §199A math never runs below the floor. Never lower salary below reasonable compensation to raise QBI. Below the threshold, a smaller salary means more QBI on paper. But a salary under the supported figure is the problem a reasonable-compensation file exists to prevent, and the QBI result is built on it.

A salary above the Study figure is the client's business decision, and it carries its own payroll tax cost for both the corporation and the owner. If the client pays more, the memo records what §199A does with that salary. The §199A result is never the reason for it.

That's why the Study's salary is the W in every formula on this page. A Reasonable Compensation Study documents the duties, the time, the comparable pay data and the method behind the number, and the Reviewer signs off on it before it's final. The planning memo then takes that salary as given and records what §199A does with it. For a quick sense of the range before the Study is built, the reasonable compensation calculator gives a starting figure; the Study is what documents it. See how a Study is built.

Salary sensitivity: one household at five salaries

Illustrative example. A married couple filing jointly owns a non-SSTB S corporation with no qualified property. Pre-salary profit, before the owner's salary and the corporation's payroll tax, is $800,000. They have $30,000 of other deductions and no net capital gain. The Study supports a salary of $150,000, so that's the floor; the table tests the floor and four higher salaries. Employer FICA is 6.2% up to the $184,500 wage base plus 1.45% on all wages. QBI is $800,000 minus the salary minus employer FICA. Taxable income stays above $553,500 at every salary, so the wage limit applies in full.

The overall cap is 20% of taxable income, between $150,987.20 and $151,705.00 across these rows, so it never binds. The crossover for this household, with payroll tax, is $224,374, which is why the binding prong switches between the $200,000 and $225,000 rows.

What the table doesn't show matters as much as what it does. It stops at the §199A column. It doesn't net the owner's own payroll tax, the employer's payroll tax, state payroll costs, or the income tax on the extra wages, and it doesn't say any of these salaries is right. It shows where the wage limit binds at each salary so the memo can state the effect of the salary the Study supports. Actual results vary based on income, industry, and state.

The more-than-2% shareholder's health insurance

A more-than-2% shareholder is treated as a partner for fringe benefit purposes (IRC §1372(a), (b)). That changes how the corporation reports the owner's health coverage, and it touches both halves of the §199A math.

How it's reported. When the S corporation pays accident and health premiums for a more-than-2% shareholder-employee, it can generally deduct them but must include them in the shareholder's wages subject to federal income tax withholding (IRS Publication 15-B (2026)). The 1120-S instructions tell the corporation to include fringe benefit expenditures for officers and employees owning more than 2% of the stock in officer compensation on line 7, and to report those benefits as wages in box 1 of Form W-2 (Instructions for Form 1120-S, line 7). When the premiums are paid under a plan for employees and their dependents, they're excluded from FICA wages (IRC §3121(a)(2)(B)), so they appear in box 1 but not in boxes 3 and 5.

The W-2 wage effect. §199A defines W-2 wages by reference to §6051(a)(3) and (8): wages as defined in §3401(a), plus elective deferrals and designated Roth contributions (IRC §199A(b)(4)(A); IRC §6051(a)(3), (8)). Read together with Publication 15-B's statement that the premiums are wages subject to income tax withholding, that points toward the premiums counting in §199A W-2 wages. The 1120-S instructions refer preparers to Rev. Proc. 2019-11 for the methods of determining W-2 wages. Which method your software applies, and whether it picks up box 1 or a lower figure, is a point to confirm in the workpaper before the wage limit relies on it. Under the unmodified box method, W-2 wages are the lesser of the box 1 and box 5 totals, which leaves the premiums out; the modified box 1 method starts from box 1 and removes only amounts that aren't wages for income tax withholding, so the premiums stay in (Rev. Proc. 2019-11 §5.01, §5.02).

Illustrative example. The Study supports a $150,000 salary, and the corporation pays $18,000 of health premiums for the owner under a plan. No elective deferrals.

• Box 1: $150,000 + $18,000 = $168,000. Boxes 3 and 5: $150,000.
• 50% of $168,000 = $84,000. 50% of $150,000 = $75,000.
• The difference in the wage limit is $9,000, and it only matters where the wage limit binds.
• Employer FICA stays at $11,475 on the $150,000 salary, because the premiums aren't FICA wages.

The QBI effect. The corporation's deduction for the premiums, reported as officer compensation, reduces the K-1 ordinary income, so it reduces QBI at the entity level. At the owner level, the self-employed health insurance deduction under §162(l) is treated as attributable to the trade or business for §199A purposes to the extent the individual's gross income from the business is taken into account in figuring it (26 CFR §1.199A-3(b)(1)(vi)). For a more-than-2% shareholder, though, the §162(l) limit is figured on the owner's wages from the S corporation (IRC §162(l)(5)(A)), and those wages are excluded from QBI (IRC §199A(c)(4)(A)). The corporation's deduction has already reduced QBI by the same premiums, so an owner-level reduction as well would reduce QBI twice for them. Software and practitioners don't all handle this the same way. The workpaper should state which treatment the return takes and why.

Actual results vary based on income, industry, and state.

Reviewer tie-out checklist

Run this before the return is signed, and again when the planning memo's Salary line changes. Every figure should trace back to the salary in the Study.

• Form 1125-E. If total receipts are $500,000 or more, Form 1125-E is complete and its line 4 total carries to Form 1120-S line 7 (Instructions for Form 1120-S, line 7). The owner's compensation on it ties to the Study salary plus any more-than-2% shareholder fringe benefits. Our guide on Form 1125-E officer compensation covers the form line by line.
  
• Line 7 vs line 8. Officer compensation is on line 7, not mixed into salaries and wages on line 8.
  
• W-2 box 1. The owner's box 1 equals the Study salary, plus more-than-2% shareholder health premiums and other fringe benefits, minus pre-tax elective deferrals. Any difference is explained.
  
• W-2 boxes 3 and 5. They equal the salary without the health premiums paid under a plan, capped at the wage base for box 3. The health coverage also shows as an information item in box 14 (Instructions for Form 1120-S).
  
• K-1 box 17, code V. Box 17 carries code V with "STMT", and the §199A information is on an attached statement, not added into one number (Instructions for Form 1120-S, Section 199A information).
  
• Statement A, QBI. The ordinary business income on Statement A ties to K-1 box 1, adjusted for any items that aren't QBI, for each trade or business.
  
• Statement A, W-2 wages. The W-2 wages reported tie to the payroll records for the calendar year, including the owner's wages, and are allocated among trades or businesses if there's more than one (Instructions for Form 1120-S, Statement A).
  
• Statement A, UBIA. UBIA of qualified property ties to the fixed asset schedule, or is $0 with a note.
  
• Statement A, SSTB box. The SSTB box is checked or not, and the file says why, with the §1.199A-5 category considered.
  
• Aggregation. If the corporation aggregates trades or businesses, Statement B is attached and consistent with prior years.
  
• Owner-level items. Employer retirement contributions reduce QBI once, at the corporation. For the owner's §162(l) deduction, the file states whether it also reduces QBI at the owner level, and why, given that the corporation's premium deduction already reduced it.
  
• Band and cap. The owner's QBI computation uses the threshold for the right filing status, the right band, and the overall cap.
  
• Study link. The salary on every line above traces to a completed Study the Reviewer has signed off, with the date.
  

What the memo's Salary line should record for QBI

If the firm prepares its own six-section planning memo (Salary, Distributions, Retirement plan, Accountable plan, Estimated tax, State), the Salary section can point to the completed Study. For QBI, it records:

• The salary and the Study that documents its support.
• Filing status, and where projected taxable income sits against the threshold, the range, and the overall cap.
• Whether the business is an SSTB.
• The W-2 wages and UBIA used in the wage limit, including how health premiums were treated.
• Which prong binds at the Study salary, and the crossover as a diagnostic.
• The QBI effect, written as a consequence of the salary, never the reason for it.
• The Reviewer who signed off on the Study, with the date.

Re-check projected income against the threshold at year end; the year-end tax planning checklist is where that lives. Traditional (pre-tax) deferrals and deductible employer contributions can lower taxable income; Roth deferrals don't. Employer contributions the S corp deducts also reduce QBI. Read the Retirement plan line with the Salary line; S-corp retirement plan options covers that side. The owner's W-2 withholding also feeds the estimate schedule, which safe harbor estimated tax for S-corp owners walks through.

Client memo paragraph template

Paste this into the Salary section of the planning memo and replace every bracketed field.

Salary and the §199A deduction. For [TAX YEAR], [CLIENT NAME]'s salary from [S CORPORATION NAME] is $[STUDY SALARY], the figure supported by the Reasonable Compensation Study dated [STUDY DATE] and signed off by [REVIEWER NAME]. That salary is not qualified business income, and the corporation's deduction for it reduces the qualified business income reported on your Schedule K-1. Based on projected taxable income of $[PROJECTED TAXABLE INCOME] and your [FILING STATUS] filing status, your return falls [below the threshold / inside the phase-in range / above the phase-in range] for [TAX YEAR]. The business [is / is not] treated as a specified service trade or business. Using W-2 wages of $[W-2 WAGES] and qualified property (UBIA) of $[UBIA], we project a qualified business income deduction of about $[PROJECTED DEDUCTION]. This figure follows from the salary; the salary was not set to produce it. We will update the projection if income, wages or filing status change before year end. This is a projection, not a guarantee, and actual results vary based on income, industry, and state.

Frequently asked questions

Is an S-corp owner's salary QBI?

No. Reasonable compensation is excluded from QBI, and the S corporation's deduction for it reduces QBI (IRC §199A(c)(4)(A); 26 CFR §1.199A-3(b)(2)(ii)(H)).

Do the owner's own W-2 wages count toward the wage limit?

Generally yes, when properly reported on Form W-2 and allocable to the qualified business (IRC §199A(b)(4); 26 CFR §1.199A-2).

What are the 2026 QBI thresholds?

Married filing jointly, $403,500 to $553,500. Married filing separately, $201,775 to $276,775. All other returns, $201,750 to $276,750 (Rev. Proc. 2025-32 §4.26).

Should an owner lower salary to get a bigger QBI deduction?

No. Salary has to be reasonable compensation supported by evidence, which the Study documents and the Reviewer signs off on first. The QBI result follows the salary.

What is the W-2 wage crossover for an S-corp owner?

For a non-SSTB above the phase-in range with no qualified property, 20% of QBI equals 50% of W-2 wages when salary is 2/7 of pre-salary profit, about 28.6%. Counting employer payroll tax, it's about 27.96% while salary is under the Social Security wage base. It's a diagnostic for which prong binds, not a way to set salary.

Does an SSTB owner above the range get the $400 minimum?

On the statute's wording, generally no. The minimum applies when aggregate QBI from active qualified trades or businesses is at least $1,000, and above the range a specified service business isn't a qualified trade or business (IRC §199A(i)(2); §199A(d)(1)(A)).

Do a more-than-2% shareholder's health premiums count as W-2 wages for §199A?

They're included in box 1 but not boxes 3 and 5 when paid under a plan. §199A W-2 wages are defined by reference to §3401(a) wages and elective deferrals, which points toward counting them, but confirm the computation method your software uses (IRC §199A(b)(4)(A); IRC §6051(a)(3), (8)).

Sources and as-of dates

Rules as of 2026-09-26. Worked figures are illustrative and recomputed for this guide.

Conclusion

Salary is subtracted from QBI, counts toward the wage limit inside and above the range, and the overall cap sits on top of both. The three households show how much the band and the SSTB flag decide, and the crossover shows which prong binds at a given salary. None of it sets the salary. The firm's memo holds up when the Salary line traces to a Study and records the QBI effect as its consequence.

TracePrep ships the Reasonable Compensation Study, which documents the evidence behind the compensation figure the §199A math starts from. The Reviewer signs off before it's final, and the workpapers stay with the Firm.

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Not tax advice.

TracePrep is a software product from TracePrep Inc., not a CPA firm. This content is operator experience for educational purposes; it is not tax advice and has not been reviewed by a licensed CPA. Consult a qualified tax professional for guidance on your specific situation. Source citations in TracePrep workpapers support audit defense but do not guarantee IRS outcomes.