The QBI (Section 199A) Deduction for the Self-Employed
The Qualified Business Income deduction — Section 199A — is one of the most valuable and most misunderstood breaks the self-employed get. In the best case it knocks 20% off your business income before tax. But the base you apply it to is smaller than you think, there's a second limit tied to your taxable income, and above a certain income the rules split sharply depending on what you do for a living. Here's how it actually works in 2026.
What the QBI deduction is
QBI lets most pass-through owners — sole proprietors, single-member LLCs, partners, and S-corp shareholders — deduct up to 20% of qualified business income on their personal return. It's a deduction against taxable income (not a business expense on Schedule C), and you can claim it whether you itemize or take the standard deduction. The 2025 tax law made the deduction permanent, so it's part of the landscape going forward rather than a temporary provision.
What counts as qualified business income
QBI is your net business profit — but reduced by several self-employment adjustments that catch people off guard. Before you take 20%, your QBI is lowered by:
- the deductible half of your self-employment tax,
- your self-employed health-insurance deduction, and
- your self-employed retirement-plan contributions (SEP-IRA, Solo 401(k)).
QBI also excludes things like capital gains, dividends, and interest income. The upshot: the number you multiply by 20% is meaningfully below your headline net profit — a common reason the deduction comes in smaller than expected.
The two 20% limits
Your deduction is the lesser of two figures:
- 20% of your QBI (as adjusted above), and
- 20% of your taxable income minus net capital gains.
The second limit matters most for people who drive their taxable income low with the standard deduction or other write-offs: if taxable income is small, 20% of it can be the binding cap, trimming your QBI deduction below 20% of business profit.
The taxable-income threshold
Below a taxable-income threshold, the QBI deduction is simple: you get 20% of QBI (subject to the taxable-income limit above), regardless of your profession. Above the threshold, extra limits switch on. That threshold is indexed for inflation each year and set by the IRS in its annual revenue procedure — for 2026, Rev. Proc. 2025-32. The exact 2026 figure isn't part of Reckix's rate dataset, so we keep it qualitative here: check the current-year number on the IRS QBI page before you plan around it. What's fixed is the structure — one threshold, below which most self-employed filers get the clean 20%.
The SSTB phase-out
Above the threshold, the biggest fork is whether you run a specified service trade or business (SSTB) — broadly, fields where the principal asset is the reputation or skill of the owner: health, law, accounting, consulting, financial and brokerage services, performing arts, athletics, and similar. SSTBs phase out of the deduction entirely across a band above the threshold; past the top of that band an SSTB owner gets no QBI deduction at all.
Non-SSTB businesses above the threshold don't lose the deduction — instead it becomes limited by the greater of a W-2-wages test or a wages-plus-property (UBIA of qualified property) test. Below the threshold, none of this applies and both types get the straightforward 20%.
Worked example
Take a single-filer consultant with $80,000 of net profit, whose taxable income sits comfortably below the threshold (so the SSTB and wage limits don't apply). First, adjust QBI down for the self-employment items, then take 20% and check it against the taxable-income limit.
| Step | Amount |
|---|---|
| Net profit (Schedule C) | $80,000 |
| − Deductible half of SE tax (approx.) | −$5,652 |
| Qualified business income (QBI) | ≈ $74,348 |
| 20% of QBI | ≈ $14,870 |
| Check: 20% of (taxable income − net capital gains) | must be ≥ $14,870 |
| QBI deduction (lesser of the two) | ≈ $14,870 |
So the deduction is roughly $14,870 — a bit under 20% of the $80,000 headline profit, because QBI was first reduced by the deductible half of SE tax (and would be reduced further by any self-employed health-insurance or retirement deductions). As long as 20% of the consultant's taxable income is at least that much, the full amount stands. If the consultant were an SSTB with taxable income above the threshold, this deduction would begin to phase out.
Start with your SE tax. The calculator shows the self-employment tax whose deductible half reduces your QBI — the first adjustment in the example above.
Open the Self-Employment Tax Calculator →Frequently asked questions
What is the QBI deduction?
The Qualified Business Income deduction under Section 199A lets most self-employed people and other pass-through business owners deduct up to 20% of their qualified business income on their personal return. It is a deduction against taxable income, not a business expense, and it is available whether you itemize or take the standard deduction. It was made permanent under the 2025 tax law changes.
Who cannot take the full 20% QBI deduction?
Above a taxable-income threshold, two groups get limited. Specified service trades or businesses (SSTBs) — fields like health, law, accounting, consulting, and financial services — phase out of the deduction entirely over a band above the threshold. Other businesses above the threshold become subject to W-2-wage and property (UBIA) limits. Below the threshold, both groups generally get the straightforward 20%.
What is the 2026 QBI income threshold?
The threshold — the taxable-income level above which the SSTB phase-out and the wage/property limits begin — is indexed for inflation each year and is set by the IRS in its annual revenue procedure (Rev. Proc. 2025-32 for 2026). That exact 2026 figure is not part of Reckix’s dataset, so this guide keeps it qualitative; look up the current-year number on the IRS QBI page before relying on it.
Is QBI based on my profit or my taxable income?
Both matter. Your deduction is the lesser of 20% of your qualified business income or 20% of your taxable income minus net capital gains. And your QBI itself is reduced by the deductible half of your self-employment tax, self-employed health-insurance premiums, and self-employed retirement contributions — so the base you take 20% of is smaller than your headline net profit.
This article is educational information, not tax, legal, or financial advice, and not an offer of any product. The QBI deduction (Internal Revenue Code Section 199A) has detailed limits and definitions; the 2026 taxable-income thresholds are indexed annually and are set by the current IRS revenue procedure, which is not part of Reckix’s rate dataset — confirm the exact figure before relying on it. Figures reflect published 2026 guidance and rates as of July 2026 and can change; confirm current numbers and how they apply to your situation with a licensed tax professional or advisor. Last reviewed July 2026. No liability is accepted for decisions made from this content.