What is the QBI deduction?

The Qualified Business Income (QBI) deduction, created by Section 199A, lets most owners of pass-through businesses — including freelancers and sole proprietors — deduct up to 20% of their qualified business income before income tax. It reduces income tax only; it does not lower self-employment tax.

Who qualifies for the QBI deduction?

Owners of sole proprietorships, partnerships, S corporations, and most LLCs with qualified business income can claim it. Below the income thresholds nearly everyone with eligible business income qualifies; above them, additional wage-and-property limits and a phase-out for specified service businesses apply.

What are the 2026 QBI income thresholds?

For 2026, the taxable-income thresholds where the extra limits begin are $197,300 for single filers and $394,600 for married filing jointly. Below these, the deduction is generally a straightforward 20%; above them, specified service businesses phase out over the next $50,000 (single) or $100,000 (married filing jointly).

What is an SSTB and why does it matter?

A specified service trade or business (SSTB) includes fields like health, law, accounting, consulting, financial services, and any business whose principal asset is the reputation or skill of its owners. SSTB owners can lose the QBI deduction once their taxable income rises above the thresholds, while many non-service businesses can still qualify under the wage-and-property tests.

Does the QBI deduction reduce self-employment tax?

No. The QBI deduction lowers your federal income tax only. Self-employment tax is calculated on your net business earnings before the QBI deduction, so the 20% does not reduce the 15.3%.

The QBI deduction explained for freelancers

It's one of the biggest tax breaks freelancers have, and one of the most confusing: the Qualified Business Income deduction lets most self-employed people knock 20% of their business profit off before income tax. Here's who gets it, where it starts to phase out, and the one thing it doesn't do.

Last reviewed: June 2026 · Figures shown for the 2026 tax year

The quick answer

The QBI deduction — created by Section 199A of the tax code — lets owners of pass-through businesses (sole proprietors, freelancers, partnerships, S corps, most LLCs) deduct up to 20% of qualified business income when figuring federal income tax. If you net $60,000 freelancing, you may simply not pay income tax on roughly $12,000 of it.

Two limits frame it: the deduction can't exceed 20% of your qualified business income, and it also can't exceed 20% of your taxable income (excluding net capital gains). Below the income thresholds, it's usually as simple as "20% of profit."

Who qualifies

If your business income flows through to your personal return — which it does for nearly every freelancer and sole proprietor — you're in the eligible group. C corporations don't get it (they have their own flat rate), and ordinary W-2 wages don't count, which is one real tax advantage 1099 work has over a salary. (More on that trade-off in 1099 vs W-2: which is actually better?)

The catch is that above certain income levels, extra rules decide how much you actually get.

The income thresholds (and the SSTB twist)

For 2026, the taxable-income thresholds where the extra limits kick in are:

Single: $197,300 (phase-out completes by $247,300)
Married filing jointly: $394,600 (phase-out completes by $494,600)

Below the threshold: almost everyone gets the full 20%, no questions asked.

Above the threshold: it depends on what kind of business you run. A specified service trade or business (SSTB) — health, law, accounting, consulting, financial services, performing arts, athletics, and any business that mainly trades on the reputation or skill of its owner — phases out of the deduction across the range above the threshold, reaching zero at the top. Non-service businesses instead face wage-and-property tests that can still preserve some or all of the deduction.

So a high-earning consultant may lose the deduction entirely, while a high-earning maker of physical products might keep it — same income, different rules.

The thing it doesn't do

The QBI deduction reduces income tax only. Your self-employment tax (15.3%) is figured on your business earnings before QBI, so the 20% deduction never touches it. It also sits on top of the standard deduction — you don't have to itemize to claim it. For how it fits with your other write-offs, see the freelancer tax-deduction checklist. Most filers report it on Form 8995 (or 8995-A above the thresholds).

See the QBI deduction applied to your numbers

Our free 1099 vs W-2 calculator factors the 20% QBI deduction into the contract-vs-salary comparison — including the SSTB phase-out — so you can see what it's actually worth to you. Our quarterly estimator applies it too. Nothing leaves your browser.

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Frequently asked questions

What is the QBI deduction?: A Section 199A deduction of up to 20% of qualified business income for pass-through owners, including freelancers. It lowers income tax, not self-employment tax.
Who qualifies?: Owners of sole proprietorships, partnerships, S corps, and most LLCs with qualified business income. Below the thresholds nearly all qualify; above them, extra limits and the SSTB phase-out apply.
What are the 2026 thresholds?: $197,300 (single) and $394,600 (married filing jointly) of taxable income. Below, generally a straight 20%; above, SSTBs phase out over the next $50,000 / $100,000.
What is an SSTB?: A specified service trade or business — health, law, accounting, consulting, finance, and similar fields. SSTB owners can lose the deduction above the thresholds.
Does it reduce self-employment tax?: No — income tax only. SE tax is computed before the QBI deduction.