The qualified business income (QBI) deduction lets most self-employed people deduct up to 20% of their business profit when figuring income tax. It was created in 2017 and made permanent by a 2025 law, so it is a lasting part of freelancer tax planning.
The basic rule
If your taxable income is below the threshold, the deduction is the smaller of:
- 20% of your qualified business income, or
- 20% of your taxable income (before the QBI deduction, minus net capital gains).
Qualified business income is roughly your business profit, reduced by the deduction for half of self-employment tax, self-employed health insurance and retirement contributions tied to the business.
Qualified business income: $85,000 − $6,005 (half of SE tax) = $78,995.
Taxable income before QBI: $78,995 − $16,100 standard deduction = $62,895.
Deduction: 20% of the smaller amount ($62,895) = $12,579. Because it pulls income out of the 22% bracket, it saves about $2,760 of income tax.
2026 thresholds
| Filing status | Full deduction up to | Phase-in ends at |
|---|---|---|
| Married filing jointly | $403,500 | $553,500 |
| Married filing separately | $201,775 | $276,775 |
| All other filers | $201,750 | $276,750 |
Below the threshold, the simple 20% rule applies to almost everyone. Above it, two limits phase in:
- Specified service businesses — health, law, accounting, consulting, financial services, performing arts, athletics, and any business whose main asset is the owner’s reputation or skill — lose the deduction gradually and get none above the phase-in range.
- Other businesses become limited by W-2 wages paid and the cost of business property.
What it does not do
The QBI deduction lowers income tax only. It does not reduce self-employment tax and does not lower your adjusted gross income. You can take it whether you itemize or take the standard deduction.
How to claim it
Most freelancers use Form 8995, the simplified version. Those above the threshold use Form 8995-A. Tax software usually handles it automatically once your Schedule C is complete.
Our calculators include the QBI deduction automatically. Above the threshold they phase it out as if your business were a specified service business, so results are conservative for other businesses. See it in action in the quarterly estimated tax calculator.