The QBI deduction in 2026: who gets the 20% pass-through deduction

The qualified business income (QBI) deduction lets owners of sole proprietorships, partnerships and S corporations deduct up to 20% of their business profit from taxable income. You get it whether you itemize or take the standard deduction. For a single freelancer with $80,000 of profit in 2026, it is worth about $11,650 of deductions and $2,183 less federal income tax.

Who can take the QBI deduction?

Individuals with income from a business they own directly or through a pass-through entity: a sole proprietorship (Schedule C), a partnership, an S corporation, or certain trusts and estates. Freelancers and independent contractors paid on a 1099 usually qualify through their Schedule C. Two kinds of income never count: wages for work you do as an employee, and income earned through a C corporation.

Qualified business income is the business's net profit after the business-related deductions on your return, including the deductible half of self-employment tax, self-employed health insurance and contributions to a SEP, SIMPLE or other qualified retirement plan. Capital gains and losses, interest not tied to the business, certain dividends and wages are left out.

How much does it save?

This table runs a single filer with no employees and no other income through our federal tax engine for 2026. The deduction is 20% of qualified business income until taxable income passes $201,750.

Because the deduction comes off taxable income, what it saves depends on your bracket: the same deduction is worth more in the 24% bracket than in the 12% one. It does not change self-employment tax, which the 1099 tax calculator shows next to income tax.

What limits the deduction?

First, the deduction can't be more than 20% of your taxable income before it, minus net capital gain. Someone whose standard deduction wipes out most of their income gets a smaller deduction than 20% of profit.

Second, up to $201,750 of taxable income before the deduction ($403,500 married filing jointly), the simple 20% rule applies to any business. Above it, two limits phase in over the next $75,000 ($150,000 joint), up to $276,750 ($553,500):

• A wage and property limit: the deduction for each business is capped by the W-2 wages it pays and the original cost of its business property. A freelancer with no employees and little equipment has almost nothing under this cap.
• A service business rule: specified service trades or businesses, a set of service fields defined in the law, lose the deduction above the range.

A business with employees keeps more of the deduction above the threshold, because its W-2 wages raise the cap. Our calculators model a business with no employees or property, so above the threshold they show the lower end of what a larger business could deduct.

The minimum deduction

If you have at least $1,000 of qualified business income from one or more active businesses in which you materially participate, your deduction is at least $400 in 2026, even when the limits above would allow less. The amount is adjusted for inflation in later years.

How to claim it

The deduction is figured on Form 8995 when your taxable income before it is at or below the threshold, or on Form 8995-A above it, and goes on Form 1040. If you pay quarterly estimated tax, counting the deduction lowers the income tax part of your payments; our guide to quarterly payments explains the deadlines.