QBI deduction calculator (Section 199A)

How the Section 199A deduction works

The Tax Cuts and Jobs Act created a deduction for pass-through business income: sole proprietors, S-corp shareholders, and partners can deduct up to 20% of their qualified business income (QBI). The deduction reduces taxable income but not self-employment income, so it does not reduce your SE tax.

For most self-employed workers with taxable income below the 2025 threshold ($197,300 single / $394,600 MFJ), the calculation is straightforward:

Deduction = 20% × QBI, capped at 20% × (taxable income − net capital gains)

Above the threshold, the rules become more complex.

The three income zones

Below $197,300 (single) / $394,600 (MFJ)

No SSTB restriction. No W-2 wage limitation. Deduction = 20% of QBI, capped at 20% of (taxable income minus net capital gains). This is where most self-employed workers fall.

Phase-in range — $197,300–$247,300 (single) / $394,600–$494,600 (MFJ)

The W-2 wage limitation and SSTB exclusion phase in linearly. At the midpoint of the range, half the limitation applies. At the upper end, the full limitation applies. If you have no employees (no W-2 wages), your deduction phases toward zero as income rises through this range.

Above $247,300 (single) / $494,600 (MFJ)

SSTBs: deduction is zero. Non-SSTBs: deduction is limited to the lesser of 20% of QBI or the W-2 wage limitation. If you pay no W-2 wages, the deduction is zero regardless of SSTB status.

The W-2 wage limitation

For taxpayers above the threshold with a non-SSTB business, the deduction is capped at the greater of:

• 50% of total W-2 wages paid by the business, or
• 25% of W-2 wages + 2.5% of the unadjusted basis of all qualified depreciable property

For a sole proprietor with no employees, both amounts are zero — the deduction disappears entirely above the threshold. This is the most common limitation high-earning freelancers hit. Strategies to restore it include hiring employees (and paying W-2 wages), converting to an S-corp that pays W-2 wages to the owner, or acquiring qualified property.

What counts as QBI

QBI is the net amount of qualified income, gain, deduction, and loss from a qualified business conducted in the U.S. It includes Schedule C income, S-corp pass-through income, and partnership income. It excludes: capital gains and losses, dividends, interest income (unless from a lending business), guaranteed payments from partnerships, and reasonable compensation paid to S-corp owner-employees.

Specified service trades or businesses (SSTBs)

SSTBs are businesses whose principal asset is the reputation or skill of one or more of its employees or owners. The IRS specifically lists: health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, and "any trade or business where the principal asset of such trade or business is the reputation or skill" of its employees or owners.

Engineering and architecture are explicitly not SSTBs. Real estate and insurance are generally not SSTBs, though agents may be.

Worked examples

Example 1 — freelancer below the threshold

A single freelance writer has QBI of $80,000 and taxable income of $150,000 (after the standard deduction, SE tax deduction, and health insurance deduction — but before the QBI deduction itself).

Example 2 — consultant (SSTB) above the threshold

A single management consultant (SSTB) has QBI of $200,000 and taxable income of $280,000. Because taxable income exceeds the $247,300 upper threshold for single filers, and the business is an SSTB, the deduction is $0.

Example 3 — non-SSTB contractor above the threshold, with W-2 wages

A married software contractor (non-SSTB) pays $100,000 in W-2 wages to employees. QBI is $250,000 and taxable income is $600,000 (above the MFJ upper threshold of $494,600):

Assumptions and limitations

• 2025 thresholds. The income thresholds ($197,300 / $394,600) are the 2025 inflation-adjusted amounts from IRS Rev. Proc. 2024-40. They change each year. The IRS announces the following year's amounts each October.
• Single business only. This calculator handles one business. If you have multiple businesses, you aggregate QBI and W-2 wages across all qualifying businesses before applying the limitation. Negative QBI from one business offsets positive QBI from another.
• This calculator does not handle the QBI loss carryforward. If your QBI is negative in a year, the loss carries forward to reduce QBI in the following year.
• UBIA (unadjusted basis of qualified property) matters mainly for capital-intensive businesses with significant depreciable assets but low payroll. The calculator accepts a UBIA input but most service-business sole proprietors can leave it at zero.
• The deduction is set to expire after 2025 unless Congress extends it. The current law (IRC § 199A) sunsets on December 31, 2025. Legislation to extend it has been proposed but not enacted as of this writing; verify the current law before filing.
• This calculator is not a substitute for professional tax advice. The QBI rules are complex, and your specific facts — entity type, aggregation elections, rental property income, patron reduction — may change your result.

Frequently asked questions

Does the QBI deduction reduce self-employment tax?

No. The QBI deduction reduces federal income tax only — it does not reduce net earnings from self-employment and has no effect on your SE tax (Schedule SE). It is an above-the- line deduction that lowers taxable income but not the SE tax base.

I'm a sole proprietor above the threshold with no employees. Can I get any deduction?

Only if you are a non-SSTB and acquire significant qualified depreciable property. Without W-2 wages or UBIA, the deduction is zero above the upper threshold regardless of SSTB status. Options to restore it include: hiring W-2 employees, electing S-corp status and paying yourself a reasonable W-2 salary, or acquiring qualified depreciable property (equipment, improvements).

Does the deduction expire?

Under current law, yes — IRC § 199A sunsets after December 31, 2025. Multiple legislative proposals have been introduced to extend it permanently. Check IRS.gov or consult a tax professional for the current status before filing.

What taxable income should I enter?

Enter your taxable income before the QBI deduction — this is the amount on Form 1040 line 15 before you subtract any QBI deduction. It should reflect income after the standard (or itemized) deduction, the SE tax deduction, and self-employed health insurance deduction, but before the QBI deduction itself.

Is rental income QBI?

Rental income from a rental activity that rises to the level of a trade or business may qualify as QBI. A safe harbor election (Rev. Proc. 2019-38) allows rental income to be treated as QBI if you meet certain criteria including a 250-hours-per-year threshold. Incidental or passive rentals generally do not qualify.