QBI deduction (Section 199A): what self-employed people actually get

The qualified business income (QBI) deduction, created by the Tax Cuts and Jobs Act of 2017 and effective through at least 2025, allows eligible self-employed individuals and pass-through business owners to deduct up to 20% of their qualified business income from taxable income. It is an “above-the-line” deduction — you can take it even if you don’t itemize.

The basic rule (below threshold)

For taxpayers whose taxable income falls below the threshold ($191,950 single / $383,900 married filing jointly in 2024 — the 2026 figures are indexed for inflation), the deduction is simply:

QBI Deduction = Qualified Business Income × 20%

Subject to an overall cap: the deduction cannot exceed 20% of your taxable income (excluding net capital gains and qualified dividends).

Example: Sole proprietor, Schedule C net profit $90,000, taxable income $75,000 (after standard deduction and half-SE deduction), below threshold.

• QBI = $90,000
• QBI × 20% = $18,000
• 20% of taxable income cap = $75,000 × 20% = $15,000
• QBI deduction = $15,000 (capped by taxable income limit)

What “qualified business income” is (and isn’t)

QBI is the net income from your trade or business. It excludes:

• W-2 wages you receive as an employee
• Capital gains and losses
• Dividends
• Interest income (unless it’s business interest)
• Guaranteed payments from partnerships

For a sole proprietor, QBI is generally the Schedule C net profit.

The phase-out range (above threshold)

For taxable incomes above the threshold, two additional limits begin to phase in over a $100,000 range (single) or $200,000 range (MFJ):

1. W-2 wage and capital limit: the deduction may not exceed the greater of (a) 50% of the W-2 wages paid by the business, or (b) 25% of W-2 wages + 2.5% of the unadjusted basis of qualified property.
2. SSTB exclusion: “Specified Service Trade or Business” owners — attorneys, accountants, consultants, financial advisors, performing artists, and others listed in § 199A — are completely phased out of the QBI deduction above the upper income threshold ($291,950 single / $483,900 MFJ in 2024).

For non-SSTB businesses above the threshold, the wage/property limit begins to apply. Businesses with significant W-2 payroll or substantial depreciable assets are least affected. Solo freelancers with no W-2 payroll and minimal assets may lose most of the deduction once income rises above the threshold.

S-corporation strategy

An S-corporation owner pays themselves a W-2 salary, which counts as W-2 wages for the QBI wage limit. This means that converting from a sole proprietorship to an S-corp can increase the QBI deduction above the threshold — the salary becomes W-2 wages that support a larger deduction under the 50%-of-W-2 test. This is one of the reasons the S-corp election can be beneficial for high-earning self-employed people, even before the SE tax savings.

Net operating losses

If your business has a net loss, it reduces your QBI. Carried-forward QBI losses from prior years reduce current-year QBI before calculating the deduction.

How the QBI deduction calculator works

The calculator takes your QBI, taxable income, filing status, and (for high earners) W-2 wages and qualified property to compute your allowable deduction. For SSTB owners, it applies the phase-out automatically. Use it to model how income changes, retirement contributions, or an S-corp election would affect your deduction.