7 Things Freelancers Need to Know About QBI Under the OBBBA
Sam's List Editorial | 2026-06-06
The QBI deduction just became permanent. If you're self-employed, this matters more than almost any other tax change in recent years.
Section 199A — the provision that lets qualifying pass-through business owners deduct up to 20% of qualified business income — was originally set to expire after 2025. The One Big Beautiful Budget Act (OBBBA) made it permanent, effective for tax years beginning after December 31, 2025. Freelancers who were bracing for that sunset can stop planning around it.
But permanent doesn't mean simple. The QBI deduction is one of the most misunderstood provisions in the tax code, and the OBBBA introduced a few new wrinkles worth knowing. Here's what actually matters for independent workers. (Verify all OBBBA provisions with your tax advisor at publish time — regulatory guidance continues to develop.)
1. The Deduction Is Now Permanent — Stop Planning Around an Expiration Date
The most immediate practical effect: you no longer need to accelerate income into 2025 or restructure your business to front-load deductions before a sunset.
Strategies built around "grab income now before QBI goes away" should be unwound or at minimum revisited. The planning landscape for pass-through businesses looks different when the deduction has an indefinite horizon. That affects decisions around S-corp elections, retirement contributions, and income timing.
If you made structural changes specifically to prepare for the QBI expiration, talk to your CPA about whether those changes still make sense.
2. A New $400 Minimum Deduction Applies to Anyone With at Least $1,000 in QBI
The OBBBA added a floor benefit for lower-income freelancers: if you have at least $1,000 in qualified business income, you get a minimum $400 deduction even if the 20% calculation produces a smaller number.
This is new. Under prior law, a freelancer with $3,000 in net self-employment income would have a QBI deduction of $600. Under the OBBBA, they get $400 as a floor — the higher of the two applies.
For part-time freelancers, side hustle operators, and early-stage independents, this is a small but real benefit. (Verify this provision and applicable income thresholds with your advisor — regulatory guidance is still emerging.)
3. Higher Phase-Out Thresholds Mean More Specified Service Business Owners Get the Full Deduction
The original Section 199A had income thresholds above which owners of "specified service trade or businesses" (SSTBs) — consultants, attorneys, financial advisors, health professionals, and others — began to phase out of the deduction entirely.
The OBBBA raised those thresholds to approximately $75,000 for single filers and $150,000 for joint filers before the phase-out begins. (Verify exact thresholds at publish time — these figures are based on legislative summaries and may be adjusted by final regulations.)
If you're a consultant, attorney, or financial professional who previously phased out of QBI benefits, you may now qualify for the full deduction. This is worth a fresh calculation.
4. The QBI Deduction Reduces Taxable Income — Not Self-Employment Income
This trips up a lot of freelancers: the QBI deduction lowers your federal income tax base. It does not reduce your self-employment tax liability.
You still pay SE tax on 92.35% of your net self-employment earnings (the 7.65% adjustment accounts for the employer-equivalent deduction). The QBI deduction happens at a different point in the calculation. The two are separate.
That means the headline "20% deduction" overstates the effective rate reduction. On $100,000 of net freelance income, the QBI deduction is $20,000. At a 22% marginal rate, that saves $4,400 in income tax — not 20% of your total tax bill. Still meaningful. Just not the number the headline implies.
5. Retirement Contributions Reduce QBI — The Math Is Circular in a Useful Way
Here's the interaction most freelancers miss: a solo 401(k) or SEP-IRA contribution reduces your net SE income, which reduces your QBI, which reduces your QBI deduction.
That sounds bad. It's not.
The income tax savings from the retirement contribution deduction still exceed the reduction in the QBI deduction for most taxpayers. But the calculation involves three moving parts simultaneously — SE tax, income tax, and QBI math — and optimizing across all three requires actual analysis, not a quick estimate.
If you're deciding between maxing a SEP-IRA versus a solo 401(k), or deciding how much to contribute before year-end, this interaction matters. A CPA who works with self-employed clients does this math routinely. Most freelancers doing it themselves get it approximately right at best.
6. Sole Proprietors Don't Have a Reasonable Compensation Requirement — S-Corps Do
S-corp elections are popular among freelancers once net income exceeds roughly $50,000–$80,000 because they allow splitting income between salary (subject to SE tax) and distributions (not subject to SE tax). The QBI deduction interacts with this split in a specific way.
If you're a sole proprietor or single-member LLC taxed as a sole prop, there's no salary requirement. Your entire net income is QBI, and the 20% deduction applies to the full amount.
If you elect S-corp status, you must pay yourself a "reasonable compensation" salary. That salary is not QBI — it's W-2 wages. Only the distribution portion qualifies. For a freelancer with modest income, an S-corp election can actually reduce the QBI deduction enough to offset part of the SE tax savings.
The right answer depends on your income level, industry, and expense structure. It's not automatic. Run the numbers before electing.
7. W-2 Wage and Qualified Property Limitations Don't Apply to Most Freelancers Below the SSTB Threshold
At higher income levels, the QBI deduction gets capped at the greater of (a) 50% of W-2 wages paid by the business, or (b) 25% of W-2 wages plus 2.5% of qualified property. This matters for S-corp owners and partnership owners with significant payroll.
For freelancers operating as sole proprietors below the SSTB phase-out threshold — which the OBBBA raised significantly — these limitations simply don't apply. You get the full 20% deduction without needing to clear the W-2 wage test.
This is the part of Section 199A that applies to large businesses and employer entities. If you're a solo operator under the threshold, you can skip this section of the analysis entirely. The deduction is straightforward: 20% of net QBI, subject only to the taxable income limitation.
What This Means for Freelancers Right Now
QBI planning used to happen in the shadow of a looming expiration. That's gone. The decision-making is now about optimization, not rescue.
That means: revisiting your entity structure with an updated model, running the retirement contribution interaction before year-end, and — if you're an SSTB owner who previously phased out — checking whether the new thresholds change your situation.
The QBI deduction is worth real money — potentially $4,000–$15,000+ annually depending on your income. It deserves more than a one-time checkbox on your return.
CPA on Fire works specifically with self-employed professionals on exactly this kind of tax strategy. If you're a freelancer who's been on autopilot with your taxes, their profile on Sam's List is a good place to start.
General information only, not legal or tax advice. Consult a qualified professional for your specific situation.