Specified Service Businesses and Section 199A Income Limits

Understanding the SSTB Limitation Under Section 199A

Specified service trades or businesses occupy a unique and often misunderstood position within Internal Revenue Code Section 199A. While many service professionals assume they are automatically excluded from the qualified business income deduction, the statute does not impose a blanket disallowance. Instead, eligibility depends on taxable income levels and the application of a statutory phaseout.

This distinction is especially important after the One Big Beautiful Bill Act made Section 199A permanent. With the deduction now embedded into the long term passthrough tax framework, the specified service rules have become a recurring planning consideration rather than a temporary concern.

For a broader discussion of how Section 199A applies across business types and investment income, see Section 199A Is Now Permanent What the OBBBA Means for Business Owners and Investors .

What Qualifies as a Specified Service Trade or Business

A specified service trade or business generally involves the performance of services where the principal asset is the reputation or skill of one or more employees or owners, as defined and narrowed by Treasury regulations. Common examples include accounting, law, health services, consulting, financial services, brokerage services, and investment management.

Importantly, the regulations limit the scope of the reputation or skill category, preventing the definition from sweeping in all service based activity. As a result, proper classification depends on the actual facts and revenue streams of the business, not merely its professional label.

How the Income Based Phaseout Works

Specified service income is eligible for the Section 199A deduction when taxable income does not exceed the applicable threshold. Once income exceeds that level, the deduction is gradually reduced and is fully eliminated after the upper limit is reached.

For the 2025 tax year, the phaseout ranges are as follows:

• Married Filing Jointly: Phaseout begins at $394,600 and ends at $494,600
• Single or Head of Household: Phaseout begins at $197,300 and ends at $247,300
• Married Filing Separately: Phaseout begins at $197,300 and ends at $247,300

Within the phaseout range, the deduction is reduced proportionally and the wage and qualified property limitations are phased in. Once taxable income exceeds the upper limit, specified service trade or business income no longer qualifies for the deduction.

What Changes After 2025 Under OBBBA

The One Big Beautiful Bill Act permanently extended Section 199A and added a statutory minimum deduction for qualifying active business owners beginning after 2025. However, the Act also modified the inflation adjustment mechanics that apply starting in 2026.

As a result, final specified service income thresholds for 2026 have not yet been published. Until Treasury and the IRS issue updated guidance and annual inflation procedures, precise 2026 limits cannot be stated with authority.

Planning Considerations for Service Professionals

Because the specified service limitation is tied to taxable income rather than gross receipts, planning often focuses on timing, income smoothing, retirement contributions, entity level deductions, and coordination with spouse income. In some cases, restructuring activities or separating non service lines of business may also be relevant.

With Section 199A now permanent, these strategies must be evaluated not only for a single year benefit, but for their long term impact on compliance and audit exposure.

See current federal rates on the Economic Dashboard .