IRS §199A · Rev. Proc. 2025-32

The QBI deduction calculator

Twenty per cent of your business profit is deductible — until your income passes a threshold most sole traders never hear about, where a second limit can take the whole deduction away. This shows both.

Your qualified business income

Enter your business profit

Net profit from the business — Schedule C line 31, after expenses.

Your taxable income

Enter your taxable income — this is what the threshold is measured against

After the standard deduction. This is what the threshold is measured against, not the profit.

Filing status

Married filing jointly gets twice the threshold; married filing separately gets half of it.

W-2 wages your business paid

Zero for most freelancers. The limit only binds above the threshold.

What kind of work is it?

Consulting, law, health, finance and similar work loses the deduction above the threshold. Engineering and architecture are not on that list.

Enter your business profit and your taxable income, then press Calculate to see the deduction.

The rule, in two stages

Most explanations stop at the first stage. Both stages apply, and the second is what surprises people.

Stage one — the size of the deduction. It is the lesser of:

20% of your qualified business income, or
20% of your taxable income minus your net capital gain.

Stage two — the limit that appears above a certain income. If your taxable income is above the threshold, the deduction for the business is also capped at the greater of:

50% of the W-2 wages the business paid, or
25% of those wages plus 2.5% of the unadjusted basis of qualified property.

Below the threshold the second stage does not exist. The statute says so directly: where taxable income does not exceed the threshold amount, the limit is applied without regard to the wage cap.

Why a freelancer with no employees can lose everything

If the business paid no W-2 wages, then 50% of its wages is zero — and so is 25% of them. Above the threshold, the greater of zero and zero is zero, so the deduction for that business is zero.

This is not a rare edge. It is the normal case for a sole proprietor, and it means the same work is treated completely differently at two income levels:

Taxable income	Deduction, no employees	Why
Below the threshold	20% of profit	The wage limit does not apply
Inside the phase-in	Falls year by year	The limit is phased in proportionally
Above the phase-in	Zero	The wage limit is fully in force, and there are no wages

Two exceptions worth knowing

A floor of $400. For an active business the deduction is the greater of the amount worked out above or $400. A small profit still gets something.

Engineering and architecture are not excluded. The statute lists the service businesses that lose the deduction above the threshold — consulting, law, health, financial services, actuarial, performing arts, and certain trading — but it applies that list without regard to the words "engineering, architecture". Those two professions keep the deduction. Plenty of summaries say the opposite.

What counts as the threshold

It is measured against taxable income, not profit. A freelancer with $220,000 of profit and a $16,100 standard deduction has taxable income near $204,000, which is already over the line for a single filer. Retirement contributions reduce it further and can pull the filer back under.

Sources

IRS Rev. Proc. 2025-32, §4.26 — the 2026 threshold and phase-in amounts
26 U.S.C. §199A(a), (b)(2)(B), (b)(3)(B) — the two stages and the phase-in range
26 U.S.C. §199A(i) — the $400 minimum deduction
26 U.S.C. §199A(d)(2)(A) — the service-business list and the engineering exception
Pub. L. 119-21 (2025) — made §199A permanent and widened the phase-in range

Checked against the sources above on 4 October 2026. The 2026 forms 8995 and 8995-A were still in draft on that date; the threshold figures are final, from the revenue procedure.