What is the QBI deduction for healthcare?
The Section 199A QBI deduction is a federal tax deduction equal to 20 percent of qualified business income from pass-through entities (S corps, partnerships, sole proprietorships), subject to income thresholds and SSTB rules.
Quick answer
The Section 199A Qualified Business Income (QBI) deduction allows a 20 percent deduction on qualified business income from pass-through entities, but it phases out for healthcare specified service trades or businesses (SSTB) above income thresholds ($403,500 MFJ for 2026 per IRS Rev. Proc. 2025-32).
The detail
The QBI deduction was created by the Tax Cuts and Jobs Act of 2017 and made permanent by OBBBA (Public Law 119-21, signed July 4, 2025). For 2025, taxable income thresholds are $197,300 (single) and $394,600 (MFJ) per IRS Rev. Proc. 2024-40; for 2026, Rev. Proc. 2025-32 sets them at $201,750 (single) and $403,500 (MFJ). OBBBA also widened the phase-in range from $50,000 / $100,000 to $75,000 / $150,000 beginning with tax years after 12/31/2025. Below the threshold, healthcare practices get the full 20 percent deduction with no SSTB restriction. Within the phase-in range, the deduction reduces ratably. Above the upper threshold, healthcare practices defined as SSTBs (which includes most clinical medicine, dentistry, and similar services) lose the deduction entirely. Most successful clinic-owner physicians and dentists are above the threshold and lose the deduction. Strategies to preserve QBI include: shifting income to non-SSTB activities (real estate, equipment leasing entities), retirement plan contributions to lower taxable income below thresholds, and entity restructuring to separate SSTB and non-SSTB activities.
2026 QBI threshold is $201,750 single / $403,500 MFJ (per IRS Rev. Proc. 2025-32); 2025 was $197,300 / $394,600.
Source: IRS Section 199A
Healthcare practices are generally classified as Specified Service Trades or Businesses (SSTBs) for QBI purposes.
Source: IRC Section 199A(d)(2)
Section 199A was made permanent by the One Big Beautiful Bill Act (Public Law 119-21, signed July 4, 2025).
What this means for clinic owners
From Sorso
If your taxable income is near the SSTB threshold, retirement plan contributions can serve double duty: tax-deferred savings and preserving the 20 percent QBI deduction. The combined effective tax savings can exceed 50 percent on dollars below the threshold.
Related questions
What tax deductions are available to medical practices?
Medical practices can deduct ordinary business expenses including staff wages, rent, equipment depreciation, supplies, malpractice insurance, CME, retirement plan contributions, and qualified business income (QBI) where eligible.
What retirement plans work best for clinic owners?
The best retirement plans for clinic owners are Solo 401(k) and SEP-IRA for solo practices ($70,000 to $77,500 contribution limits for 2025), and 401(k) plus Cash Balance Plan combinations for partnerships, which can shelter $250,000 to $400,000+ per partner annually.
Are healthcare practices specified service trades or businesses (SSTB)?
Yes. Under IRC Section 199A, the field of health is explicitly listed as an SSTB, including services performed by physicians, dentists, nurses, therapists, and similar healthcare professionals. SSTB status restricts the QBI deduction above income thresholds.
How do I structure a practice for tax efficiency?
The most tax-efficient practice structure typically involves an S corporation or PLLC for the clinical practice, a separate LLC for real estate, an MSO for non-clinical services, and a defined benefit retirement plan, optimized to preserve QBI and balance payroll tax exposure.
Founder of Sorso. 19 years in corporate finance. Managed a $450M loan portfolio before building a fractional CFO firm exclusively for healthcare clinics.
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