The QBI Deduction for Freelancers and Gig Workers, Explained

What the QBI deduction is

The qualified business income deduction, also called the Section 199A deduction, is for owners of sole proprietorships, partnerships, S corporations and some trusts and estates. If you work on a 1099 and file Schedule C, you are a sole proprietor, and you almost certainly qualify, whether you drive for apps, clean houses or freelance online.

Three things make it different from your other deductions:

• You don’t need to itemize. You take it with the standard deduction too.
• It is not a business expense. It is subtracted after your adjusted gross income, so it lowers your taxable income but not your AGI.
• It does not lower self-employment tax. Self-employment tax is figured on your Schedule C profit before the QBI deduction.

What counts as qualified business income

For a 1099 worker, QBI is basically your Schedule C profit minus the deductions tied to the business that you take outside Schedule C:

• the deductible half of your self-employment tax;
• the self-employed health insurance deduction;
• contributions to a SEP IRA, solo 401(k) or other retirement plan for yourself.

Wages from a W-2 job, interest, dividends and capital gains are not QBI.

The limit that decides the amount: 20% of taxable income

The deduction is the smaller of two amounts:

1. 20% of your QBI.
2. 20% of your taxable income before the QBI deduction, minus any net capital gain.

Because the standard deduction already came out of your taxable income, the second limit is smaller whenever your business is your only income. With a W-2 job or a working spouse, your taxable income is higher and you usually get the full 20% of your QBI. Examples for a single filer in 2026:

In the last column, 20% of taxable income would be only $126, but the new minimum raises the deduction to $400.

The new minimum deduction

Starting in 2026, if your qualified business income from businesses you actively work in is at least $1,000, your QBI deduction is at least $400. Most gig workers and freelancers qualify, since they do the work themselves. It helps in years with a small profit, when 20% of taxable income would give you almost nothing.

Above the income threshold

The rules get stricter when your taxable income before the QBI deduction is more than $201,750 ($403,500 if married filing jointly). Above that, over a range that ends at $276,750 ($553,500):

• Specified service businesses, such as health, law, accounting, consulting, financial services, athletics and the performing arts, gradually lose the deduction, and get none above the range.
• Other businesses are limited by the W-2 wages they pay and the business property they own. If you have no employees and little equipment, the deduction shrinks the same way.

Most 1099 workers are far below these amounts, so they only need to watch the 20% of taxable income limit.

How to claim it

1. Figure your Schedule C profit and your self-employment tax as usual.
2. Use Form 8995 if your taxable income before the QBI deduction is at or below the threshold, or Form 8995-A if it is above.
3. Enter the deduction on your Form 1040. Tax software does all of this for you when you file Schedule C.

If your business had a loss, you get no QBI deduction that year, and the loss carries forward to reduce your QBI in later years.

Tips for 1099 workers

• Don’t skip expenses to boost QBI. A dollar of expenses lowers QBI by a dollar, which costs you at most 20% of a dollar of deduction, but it saves you income tax and self-employment tax on the whole dollar.
• Retirement contributions still pay off. They lower your QBI a little, but they lower your adjusted gross income by the full amount.
• Use our calculators. The 1099 tax calculator and the gig driver tax calculator include the QBI deduction automatically, with the taxable income limit and the minimum.