---
title: "QBI Deduction 2026: 20% Rule, Limits and Examples | TaxWren"
description: "The QBI deduction lets owners of sole proprietorships, partnerships and S corporations deduct up to 20% of business income. 2026 limits and worked examples."
url: https://taxwren.com/blog/qbi-deduction
---

[Self-employed](/blog/self-employed) · Explainer

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

The QBI deduction lets owners of sole proprietorships, partnerships and S corporations deduct up to 20% of business income. 2026 limits and worked examples.

By [the TaxWren team](/about#who-writes) · Updated October 29, 2026 · 4 min read

## Key takeaways

-   If you own a sole proprietorship, partnership or S corporation, you can deduct up to 20% of your qualified business income, whether or not you itemize. A freelancer with $80,000 of profit deducts about $11,650 and saves about $2,183 in federal income tax in 2026.
-   The deduction can't be more than 20% of taxable income before it, minus net capital gain. Above $201,750 of taxable income ($403,500 married filing jointly), wage and service-business limits phase in.
-   The deduction is permanent, and there is a minimum deduction of $400 in 2026 if you have at least $1,000 of qualified business income from businesses you materially participate in.

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-employment-tax-calculator), 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.

| Net profit | Qualified business income | Taxable income before QBI | QBI deduction | Income tax saved |
| --- | --- | --- | --- | --- |
| $40,000 | $37,174 | $21,074 | $4,215 | $506 |
| $80,000 | $74,348 | $58,248 | $11,650 | $2,183 |
| $150,000 | $139,403 | $123,303 | $24,661 | $5,777 |
| $250,000 | $235,213 | $219,113 | $36,152 | $10,063 |
| $320,000 | $304,276 | $288,176 | $400 | $140 |

2026, single filer, standard deduction, no employees or business property, no capital gains. Qualified business income is net profit less the deductible half of self-employment tax. Calculated with our [1099 tax calculator](/1099-tax-calculator) engine.

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](/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.

$250,000 of profit, inside the phase-in range

Taxable income before the deduction is $219,113, $17,363 above the $201,750 threshold. With no employees or business property, the deduction shrinks in proportion: 20% of $235,213 would be $47,043, and the phase-in leaves $36,152. At $320,000 of profit, taxable income before the deduction is $288,176, past the end of the range, and the deduction falls to $400, the minimum deduction described below.

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](/estimated-tax-calculator), counting the deduction lowers the income tax part of your payments; our [guide to quarterly payments](/blog/quarterly-estimated-tax-payments) explains the deadlines.

Tip

Enter your gross income and business expenses in the [1099 tax calculator](/1099-tax-calculator) to see the QBI deduction, income tax and self-employment tax for 2026 in one place. If you also have a W-2 job, the [income tax calculator](/income-tax-calculator) combines both.

## Sources

1.  IRS: [Qualified business income deduction](https://www.irs.gov/newsroom/qualified-business-income-deduction) (official)
2.  IRS: [Instructions for Form 8995, Qualified Business Income Deduction Simplified Computation](https://www.irs.gov/instructions/i8995) (official)
3.  IRS: [Understanding the Working Families Tax Cuts: business tax provisions (webinar transcript)](https://www.irs.gov/newsroom/understanding-the-working-families-tax-cuts-business-tax-provisions-youtube-video-text-script) (official)

Figures come from the data files behind our calculators and update with them. See our [methodology](/methodology) and [editorial policy](/editorial-policy). This article is general information, not tax advice.

## Frequently asked questions

### Do W-2 employees get the QBI deduction?

No. Income from services you perform as an employee is not qualified business income. If you also run a side business, its profit can qualify.

### Do I have to itemize to take the QBI deduction?

No. It is available whether you itemize deductions on Schedule A or take the standard deduction.

### Is the QBI deduction permanent?

Yes. The One Big Beautiful Bill Act (Public Law 119-21) made it permanent. The same law widened the phase-in ranges and added a minimum deduction, $400 in 2026, adjusted for inflation in later years.

### Do C corporation dividends count?

No. Income earned through a C corporation is not eligible. Qualified REIT dividends and qualified publicly traded partnership income have their own 20% component of the deduction.

## Run your own numbers

-   [1099 tax calculator](/1099-tax-calculator)
    
    Self-employment tax, federal income tax with the QBI deduction, set-aside percentage and 2026 quarterly 1040-ES payments.
    
-   [Self-employment tax calculator](/self-employment-tax-calculator)
    
    Self-employment tax (Schedule SE): Social Security and Medicare on net profit, the wage base with W-2 wages, the Additional Medicare tax and the deduction for half.
    
-   [Estimated tax calculator](/estimated-tax-calculator)
    
    Quarterly federal estimated tax (Form 1040-ES): this year's tax, the safe amount from 90% of this year or 100%/110% of last year, withholding and every due date.
    
-   [Income tax calculator](/income-tax-calculator)
    
    Federal and state income tax owed for 2026.
    

## More on self-employed

-   [Form 1099-K: who gets one in 2026 and how to report it](/blog/form-1099-k)
-   [Quarterly estimated tax payments 2026: due dates and how much to pay](/blog/quarterly-estimated-tax-payments)