QBI Deduction for Home Care Agency Owners: Is Your Agency a Specified Service Business?

If you extended your 2025 return, it is due October 15, 2026, and the QBI deduction on it turns on one question for a home care agency owner: are the services your agency provides medical? At taxable income below $197,300 (single) or $394,600 (joint) for 2025, the answer barely matters. Above those figures it can decide whether the deduction is reduced, phased out, or unavailable.

What the Test Actually Says

The qualified business income deduction lets an owner of a pass-through business deduct up to 20% of qualified business income (IRC §199A). For higher-income owners, §199A excludes a “specified service trade or business” (SSTB), and the list of SSTB categories includes services in the field of health (§199A(d)(2), which incorporates the list in §1202(e)(3)(A)).

The Treasury regulation defines that field narrowly. It is “the provision of medical services by individuals such as physicians, pharmacists, nurses, dentists, veterinarians, physical therapists, psychologists, and other similar healthcare professionals performing services in their capacity as such.” It “does not include the provision of services not directly related to a medical services field, even though the services provided may purportedly relate to the health of the service recipient” (Treas. Reg. §1.199A-5(b)(2)(ii)). The examples the regulation gives of what falls outside are health clubs and spas, payment processing, and pharmaceutical or device research and sales.

Where Home Care Agencies Land

Home care is not one business model, so it is not one answer.

• Non-medical companion and personal-care agencies (help with bathing, meals, errands, companionship) are commonly analyzed as not providing medical services, and so as outside the health-field category.
• Skilled home health agencies (nursing, physical or occupational therapy delivered by licensed clinicians) provide medical services by the kinds of professionals the regulation names, and are commonly analyzed as inside it.
• Mixed agencies need a receipts test. Under the de minimis rule, a business with $25 million or less in gross receipts is not an SSTB if less than 10% of its gross receipts come from SSTB services (5% above $25 million) (Treas. Reg. §1.199A-5(c)(1)). Cross the line and the whole business is classified as an SSTB, not just the skilled-care portion.
• Related entities. If a separate business provides property or services to a commonly owned SSTB, and common ownership is 50% or more, that portion is treated as its own SSTB (Treas. Reg. §1.199A-5(c)(2)(i)). Owners who lease a building or staff to a related agency should have that checked.

Note the regulation defines the category by the services provided. It does not, by its wording, turn on whether the owner holds a clinical license. That reading, and how it applies to your agency’s service lines, should be confirmed on your facts.

Why the Income Threshold Comes First

For 2025 returns the taxable-income threshold is $197,300 for single filers and $394,600 for joint filers, with a phase-in range of $50,000 and $100,000 above them. Inside the range, “an applicable percentage” of an SSTB is treated as a qualified trade or business; above it, an SSTB is excluded entirely. Below the threshold, SSTB status does not matter (IRS, Instructions for Form 8995-A (2025)).

For tax years beginning after 2025, §199A as amended widens the phase-in range to $75,000 (single) and $150,000 (joint) and adds a minimum deduction of $400 for taxpayers with at least $1,000 of active qualified business income (P.L. 119-21, §70105; IRS QBI page). The 2026 threshold amounts are published in Rev. Proc. 2025-32.

If the Agency Is Not an SSTB: The Wage Limit

Above the threshold, a non-SSTB’s deduction is limited to the greater of 50% of the business’s W-2 wages, or 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property (IRC §199A(b)(2)(B)). Home care is a payroll-heavy business, and caregiver wages are W-2 wages, so this limit is often less restrictive for agencies than for businesses with a small payroll. Whether it binds is arithmetic on actual wages and income.

Your Own Salary Runs Through Both Sides

Reasonable compensation paid to an owner by the business is excluded from qualified business income (IRC §199A(c)(4)). It still counts as W-2 wages for the limit above. For an S-corporation owner, the salary decision therefore moves two inputs at once: a higher salary lowers qualified business income and raises W-2 wages. That is a modeling exercise, not a rule of thumb.

A Hypothetical, for the Mechanics Only

Take a hypothetical joint filer with an S-corporation home care agency, qualified business income of $180,000 after reasonable compensation, and 2025 taxable income of $260,000. That income is below the $394,600 threshold, so the SSTB question does not apply, and the tentative deduction is 20% of $180,000, or $36,000, subject to the overall taxable-income limitation. This shows how the calculation works. It is not a prediction of any owner’s result.

The October 15 Point

An automatic extension gives individuals until October 15 to file, but “the extension is only for filing your return,” and tax owed was due in April (IRS, Extension of Time to File Your Tax Return). The QBI deduction is computed on Form 8995 or Form 8995-A with the return, so the classification and the wage figures need to be settled before the return is filed, not after.

Sources

• IRC §199A: https://www.law.cornell.edu/uscode/text/26/199A
• Treas. Reg. §1.199A-5 (SSTB rules): https://www.ecfr.gov/current/title-26/section-1.199A-5
• IRS, Instructions for Form 8995-A (2025): https://www.irs.gov/instructions/i8995a
• IRS, Qualified Business Income Deduction: https://www.irs.gov/newsroom/qualified-business-income-deduction
• Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
• P.L. 119-21 (H.R. 1), §70105: https://www.congress.gov/bill/119th-congress/house-bill/1/text
• IRS, Extension of Time to File Your Tax Return: https://www.irs.gov/forms-pubs/extension-of-time-to-file-your-tax-return

Educational content only. Not tax, legal, or investment advice. Tax strategies depend on your specific facts and circumstances. Consult a qualified professional regarding your situation. Past results do not guarantee future outcomes.