QBI Deduction [Section 199A] for Healthcare Practitioners: A Guide

by | Sep 15, 2025 | Entity Planning, Tax Compliance, Tax Planning, Taxes | 3 comments

What is the QBI Deduction?

  • The Qualified Business Income (QBI) deduction, created by the Tax Cuts and Jobs Act (TCJA), allows eligible taxpayers to deduct up to 20% of qualified business income from pass-through entities (sole proprietorships, partnerships, S corporations, and some trusts/estates).
  • It applies to income earned through a trade or business, not wages or investment income.

Healthcare Practitioners and the “Specified Service Trade or Business” (SSTB) Rule

  • Healthcare services (physicians, dentists, chiropractors, physical therapists, psychologists, nurses, etc.) are considered Specified Service Trades or Businesses (SSTBs).
  • SSTBs face income phase-out limitations for the QBI deduction.

Key point: If your taxable income is above certain thresholds, your ability to claim the deduction phases out and may be eliminated entirely.

2025 Income Thresholds (adjusted annually for inflation)

For tax year 2025 (filing in 2026):

  • Single filers:
    • Full deduction if taxable income ≤ $210,700
    • Phase-out between $210,700 – $260,700
    • No deduction if taxable income > $260,700
  • Married filing jointly:
    • Full deduction if taxable income ≤ $421,400
    • Phase-out between $421,400 – $471,400
    • No deduction if taxable income > $471,400

(Note: These numbers adjust annually; always confirm for the filing year.)

What Counts as Qualified Business Income (QBI)?

Included:

  • Net income from your medical practice (after expenses)
  • Guaranteed payments to partners (not eligible directly, but reduce firm income)

Excluded:

  • Wages you receive as an employee
  • Capital gains/losses
  • Dividends, interest income not related to the business

Planning Strategies for Healthcare Practitioners

Since many practitioners are high earners, the deduction often phases out. Strategies may include:

  • Income management: Deferring or accelerating income/expenses to stay under thresholds.
  • Retirement contributions: Maximize 401(k), SEP IRA, or defined benefit plan contributions to reduce taxable income.
  • Entity structure review: Some practitioners may benefit from operating as an S-Corp (reasonable salary + distributions).
  • Family income shifting: If appropriate, employing family members at reasonable wages can reduce taxable income.
  • Aggregation rules: If you own multiple businesses, aggregation may help optimize the deduction.

Practical Example

  • Dr. Smith, married filing jointly, taxable income = $400,000
    • Below the $421,400 threshold → eligible for the full 20% QBI deduction on qualified practice income.
  • Dr. Jones, married filing jointly, taxable income = $500,000
    • Above the $471,400 cutoff → no QBI deduction available.

7. Key Takeaways

  • Healthcare practitioners are SSTBs, so the QBI deduction is limited by income thresholds.
  • If your taxable income is below the thresholds, you can generally claim the deduction.
  • If above, proactive tax planning is required to preserve eligibility.
  • Work with a CPA or tax advisor familiar with healthcare practices to maximize benefits.

✅ Action Step: Review your 2025 taxable income projections and consider whether retirement contributions, entity restructuring, or expense timing could help you qualify for the deduction.

QBI Deduction Flowchart for Healthcare Practitioners

QBI Deduction Flowchart for Healthcare Practitioners

Step 1: Business Type
➡️ Are you a sole proprietor, partner, S‑Corp owner, or LLC taxed as one of these?

  • ❌ No → Not eligible.
  • ✅ Yes → Continue.

Step 2: Industry Check
➡️ Are you providing healthcare services (doctor, dentist, therapist, nurse, psychologist, etc.)?

  • ✅ Yes → You are an SSTB → Income limits apply.
  • ❌ No → Normal QBI rules apply (skip SSTB limits).

Step 3: Taxable Income Test (2025)
➡️ What is your taxable income (after deductions)?

  • Single:
    • ≤ $210,700 → Full 20% QBI deduction
    • $210,701 – $260,700 → Partial deduction (phased out)
    • $260,700 → No deduction
  • Married Filing Jointly:
    • ≤ $421,400 → Full 20% QBI deduction
    • $421,401 – $471,400 → Partial deduction
    • $471,400 → No deduction

Step 4: QBI Calculation
➡️ Is your income within the eligible range?

  • ✅ Yes → Deduction = Up to 20% of QBI (net practice profit after expenses, excluding wages, guaranteed payments, capital gains, dividends).
  • ❌ No → Deduction not allowed.

Step 5: Planning Opportunities (if near limits)

  • Max out retirement contributions (401k, SEP IRA, defined benefit plan).
  • Use HSAs/FSAs.
  • Consider S‑Corp salary/distribution balance.
  • Shift or defer income/expenses.
  • Employ family members (if appropriate).

Step 6: Filing
➡️ Claim deduction on Form 8995 (simplified) or Form 8995‑A (complex cases) with your tax return.

✅ Quick Rule of Thumb for Healthcare Practitioners:

  • Below threshold → Full 20% deduction.
  • In phase‑out range → Partial deduction.
  • Above upper limit → No deduction.

Example: QBI Deduction for a Healthcare Practitioner

Facts:

  • Taxpayer: Dr. Green, married filing jointly
  • Filing Year: 2025
  • Business: Sole proprietor medical practice (SSTB)
  • Net practice income (after expenses): $350,000
  • Other income: $10,000 in dividends (not QBI)
  • Retirement plan contribution: $40,000 to a defined benefit plan
  • Standard deduction: $29,200 (2025 MFJ amount)

Step 1: Calculate Adjusted Gross Income (AGI)

  • Practice income (QBI eligible): $350,000
    • Dividends: $10,000
  • – Retirement contribution: ($40,000)
    = AGI: $320,000

Step 2: Calculate Taxable Income

  • AGI: $320,000
  • – Standard deduction: ($29,200)
    = Taxable Income: $290,800

Step 3: Compare to SSTB Thresholds (2025 MFJ)

  • Threshold for full deduction: $421,400
  • Dr. Green’s taxable income = $290,800 → below threshold ✅
  • Result: Eligible for full 20% QBI deduction

Step 4: Calculate QBI Deduction

  • Qualified business income = $350,000 (practice profit)
  • QBI deduction = 20% × $350,000 = $70,000

Step 5: Apply Deduction

  • Taxable income before QBI deduction: $290,800
  • – QBI deduction: ($70,000)
    = Final taxable income: $220,800

✅ Result: Dr. Green reduces taxable income by $70,000 using the QBI deduction.

Second Example: Above the Limit

Facts:

  • Dr. Brown, married filing jointly
  • Net practice income: $500,000
  • No significant deductions

Taxable income = $500,000 → Above $471,400 cutoff
➡️ Because healthcare is an SSTB, Dr. Brown gets no QBI deduction.

QBI Deduction Comparison – Healthcare Practitioners (2025, MFJ)

ScenarioTaxable IncomeSSTB StatusQBI DeductionResult
Eligible – Full Deduction$350,000Healthcare = SSTB20% × $350,000 = $70,000✅ Full deduction allowed (below $421,400)
Partial Deduction (Phase‑Out)$450,000Healthcare = SSTBDeduction reduced proportionally (phase‑out between $421,400 – $471,400)⚠️ Only a fraction of the 20% deduction allowed
Ineligible – Above Limit$500,000Healthcare = SSTB$0❌ No deduction (above $471,400 cutoff)

Quick Rules of Thumb

  • Below $421,400 (MFJ) → Full 20% deduction
  • Between $421,401 – $471,400 (MFJ) → Partial deduction (phased out)
  • Above $471,400 (MFJ) → No deduction for healthcare practitioners

(For single filers: phase‑out range is $210,701 – $260,700)

✅ This table shows why income management and planning (retirement contributions, expense timing, entity structure) are critical for healthcare practitioners.

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