Quick answer
The qualified business income (QBI) deduction (section 199A) lets most freelancers and sole proprietors deduct up to 20% of their business profit from taxable income. In 2026 you get it in full if your taxable income is $201,750 or less (single) or $403,500 or less (married filing jointly). It lowers income tax only, not self-employment tax, and you claim it even if you take the standard deduction.
The One Big Beautiful Bill Act made the deduction permanent, widened the phase-in ranges and added a $400 minimum deduction for active business owners with at least $1,000 of QBI, starting in 2026.
What counts as qualified business income?
QBI is the net profit from a US trade or business run as a sole proprietorship, partnership, LLC or S-corp, minus a few adjustments:
- The deductible half of your self-employment tax.
- The self-employed health insurance deduction.
- Contributions to your SEP IRA, Solo 401(k) or other self-employed retirement plan.
Not QBI: wages from an employer, S-corp owner salaries, guaranteed payments to partners, investment income such as capital gains, dividends and most interest.
2026 income limits
| Filing status | Full deduction if taxable income is at or below | Phase-in range (new, wider) | Fully phased in at |
|---|---|---|---|
| Single, head of household | $201,750 | $75,000 | $276,750 |
| Married filing jointly | $403,500 | $150,000 | $553,500 |
Below the threshold, every type of business gets the simple 20% calculation. Above it, limits kick in: specified service businesses (SSTBs) gradually lose the deduction, and other businesses become limited by W-2 wages paid and business property.
What’s a specified service trade or business (SSTB)?
Fields where the business relies mainly on the owner’s skill or reputation: health, law, accounting, actuarial science, performing arts, consulting, athletics, financial and brokerage services, and investing. Many freelancers (designers, writers, developers, marketers) are not SSTBs, but consultants often are. The distinction only matters above the income threshold.
How to calculate it (below the threshold)
Your deduction is the smaller of:
- 20% of your QBI, or
- 20% of your taxable income before the QBI deduction (minus net capital gains).
Example 1: $60,000 of profit (single)
| Step | Amount |
|---|---|
| Net profit | $60,000 |
| QBI (minus half of SE tax, $4,239) | $55,761 |
| 20% of QBI | $11,152 |
| Taxable income before QBI ($55,761 AGI − $16,100 standard deduction) | $39,661 |
| 20% of taxable income | $7,932 |
| QBI deduction (smaller of the two) | $7,932 |
At a 12% bracket, that saves about $950 of income tax.
Example 2: $100,000 of profit (single)
| Step | Amount |
|---|---|
| QBI ($100,000 − $7,065 half of SE tax) | $92,935 |
| 20% of QBI | $18,587 |
| Taxable income before QBI ($92,935 − $16,100) | $76,835 |
| 20% of taxable income | $15,367 |
| QBI deduction | $15,367 |
Mostly at the 22% bracket, that’s a saving of roughly $3,400.
Example 3: a high-earning consultant (SSTB)
A single consultant with $300,000 of taxable income is above $276,750, the top of the 2026 phase-in range. Because consulting is an SSTB, the QBI deduction is $0. Between $201,750 and $276,750 it would be partially reduced. A non-SSTB business at the same income could still get a deduction, limited by W-2 wages paid and business property.
The new $400 minimum
From 2026, if you have at least $1,000 of QBI from businesses in which you materially participate, your deduction is at least $400, even if the normal formula gives less. This mainly helps side hustlers with small profits.
How to claim it
- Form 8995 if your taxable income is at or below the threshold (most freelancers).
- Form 8995-A if you’re above it.
- The result goes on Form 1040, line 13, below the standard or itemized deduction.
Tax software calculates it automatically once you complete Schedule C.
Frequently asked questions
Do I need to itemize to get the QBI deduction?
No. You get it in addition to the standard deduction.
Does the QBI deduction reduce self-employment tax?
No. It only reduces income tax. Self-employment tax is based on Schedule C profit.
Do S-corp owners get the QBI deduction?
Yes, on their share of the S-corp’s profit, but not on the salary they pay themselves.
Is the QBI deduction going away?
No. It was set to expire after 2025, but the One Big Beautiful Bill Act made it permanent.
Does contributing to a SEP IRA reduce my QBI deduction?
Slightly, yes: retirement contributions reduce QBI. The overall tax saving from the contribution is still usually much larger.
This article is general information, not tax advice. QBI rules above the threshold are complex; consult a CPA or Enrolled Agent.
Sources
- QBI deduction income limits 2026 (Catalyst CPA): 2026 thresholds from Rev. Proc. 2025-32, the wider phase-in ranges under OBBBA §70105, the $400 minimum, and Forms 8995/8995-A.
- IRS releases tax inflation adjustments for tax year 2026 (IRS): standard deduction and brackets used in the examples.
Examples are FreelancerTaxHQ calculations.