Details of Public Law 119-21, section 70105 , One Big Beautiful Bill Act

The provision makes permanent the 20 percent deduction for qualified business income (QBI), established under the Tax Cuts and Jobs Act (Public Law 115-97, section 11011), which would have expired on December 31, 2025. In addition, the minimum deduction for QBI is set to $400.

The provision also increases phase-in threshold amount on taxable income based on W-2 wages paid and capital from $50,000 to $75,000 ($100,000 to $150,000 in the case of a joint return). A disallowance of the deduction with respect to specified service trades or businesses is also phased in above the threshold amount of taxable income.

The provision defines the term “applicable taxpayer” as a taxpayer whose aggregate qualified business income with respect to all active qualified trades or businesses of the taxpayer for such taxable year is at least $1,000.

The provision defines the term “active qualified trade or business” as any qualified trade or business of the taxpayer in which the taxpayer materially participates (within the meaning of IRC section 469(h)).

The amount for both the QBI minimum deduction and applicable taxpayer’s aggregate qualified business income are indexed for inflation using the Chained Consumer Price Index for All Urban Consumers (C–CPI–U) for taxable years beginning after December 31, 2026.

California does not conform, under the PITL, to the federal deduction for qualified business income of pass-through entities under IRC section 199A.

The estimated revenue impact to conform to the above provisions would result in the following loss:

26/27 27/28 28/29 29/30 $(5,000,000,000) $(3,500,000,000) $(3,600,000,000) $(3,700,000,000)