What OBBBA Changed for Freelancers
The One Big Beautiful Budget Act (OBBBA) — signed into law in 2026 — made four significant changes to the Qualified Business Income (QBI) deduction under IRC § 199A. All four are favorable for self-employed individuals:
| Change | Before OBBBA (TCJA) | After OBBBA |
|---|---|---|
| QBI deduction rate | 20% of QBI | 23% of QBI |
| Permanence | Expired Dec 31, 2025 | Permanent — no sunset |
| Minimum deduction | None ($0) | $400 floor for any QBI > $0 |
| Phase-in ranges | Immediate at thresholds | $75K buffer (single), $150K buffer (MFJ) |
The 23% Rate: What It Means in Dollars
The most impactful OBBBA change for most freelancers is the rate increase from 20% to 23%. This applies to your qualified business income (QBI) — typically your net profit from Schedule C, after expenses but before the QBI deduction itself.
| Net Business Income | Old Deduction (20%) | New Deduction (23%) | Extra Deduction | Est. Extra Savings* |
|---|---|---|---|---|
| $50,000 | $10,000 | $11,500 | $1,500 | ~$330 |
| $75,000 | $15,000 | $17,250 | $2,250 | ~$495 |
| $100,000 | $20,000 | $23,000 | $3,000 | ~$660–$720 |
| $125,000 | $25,000 | $28,750 | $3,750 | ~$825–$900 |
| $150,000 | $30,000 | $34,500 | $4,500 | ~$1,080 |
| $197,300 (threshold) | $39,460 | $45,379 | $5,919 | ~$1,421 |
*Extra savings estimated at 22% marginal bracket for $50K–$100K; 24% for higher incomes. Actual savings depend on your filing status, bracket, and state taxes.
New $400 Minimum QBI Deduction
OBBBA added a $400 minimum deduction floor for anyone with at least $1 of qualified business income. Before OBBBA, if your QBI calculation produced a deduction below $400, you simply got whatever the math produced.
Who this helps:
- Part-year freelancers who start or stop self-employment mid-year
- Side-hustle earners with modest 1099 income alongside regular employment
- New business owners in their first partial year of operation
- Anyone with under ~$1,740 in net business income (where 23% × $1,740 = $400)
The minimum deduction is automatic — your tax software should calculate and apply it. You don't need to make any special election or filing.
Expanded Phase-In Ranges
The QBI deduction has always had income thresholds above which restrictions apply. OBBBA didn't change those base thresholds ($197,300 single / $394,600 MFJ) — but it added larger phase-in ranges above them, giving more taxpayers access to the full deduction.
The 2026 QBI Threshold Structure
| Income Zone | Single Filer | MFJ | What Applies |
|---|---|---|---|
| Below threshold | Under $197,300 | Under $394,600 | Full 23% deduction — no restrictions |
| Phase-in range (new) | $197,300–$272,300 | $394,600–$544,600 | Graduated phase-in of W-2 wage limitation (non-SSTB) or SSTB phase-out |
| Above phase-in (non-SSTB) | Over $272,300 | Over $544,600 | Limited to 50% of W-2 wages paid to employees |
| Above phase-in (SSTB) | Over $272,300 | Over $544,600 | Deduction fully eliminated |
Most Freelancers Are Below the Threshold
The IRS doesn't publish income distribution data by self-employment status, but the $197,300 single threshold is well above median freelancer income. Most sole proprietors and single-member LLC owners earning under $200K get the full 23% deduction with no phase-out concerns.
Is the QBI Deduction Permanent Now?
Yes — fully permanent. This matters more than most freelancers realize.
Under the Tax Cuts and Jobs Act (TCJA), Section 199A was a temporary provision scheduled to expire on December 31, 2025. Every year after 2017, freelancers technically faced a "cliff" — if Congress didn't act, the deduction would vanish entirely in 2026.
OBBBA eliminated that cliff. The 23% QBI deduction now has no expiration date. It applies to 2026, 2027, and every tax year thereafter unless Congress explicitly changes it.
What This Means for Business Planning
- Entity structure decisions can now factor in QBI with confidence — the deduction won't disappear
- S-Corp elections that relied on the QBI deduction on distributions are now more valuable long-term
- Revenue projections for tax planning purposes no longer need a "QBI sunset" scenario
- Retirement planning around S-Corp salary vs. distribution splits is now more predictable
SSTB vs. Non-SSTB Under OBBBA
The Specified Service Trade or Business (SSTB) rules remain in place under OBBBA. If your business is an SSTB and your income is above the threshold, the QBI deduction phases out completely. But the rate increase and expanded ranges still help SSTBs below and within the phase-out range.
| Business Type | Examples | Below Threshold | In Phase-Out Range | Above Range |
|---|---|---|---|---|
| Non-SSTB | Software dev, marketing, e-commerce, real estate, construction | Full 23% | W-2 wage limit phases in | Capped at 50% of W-2 wages |
| SSTB | Consulting, law, medicine, accounting, financial advisory, athletics, performing arts | Full 23% | Deduction phases out linearly to $0 | $0 — completely eliminated |
Most independent consultants and freelancers with income under $197,300 (single) don't need to worry about SSTB rules — they get the full 23% deduction regardless of business type.
How to Calculate Your 23% QBI Deduction
For most freelancers below the income threshold, the calculation is straightforward:
Calculate your net business income
Start with gross revenue, subtract all legitimate business expenses. This is your Schedule C net profit. Example: $120,000 gross − $20,000 expenses = $100,000 net income.
Apply the 23% rate
Multiply net business income by 0.23. Example: $100,000 × 0.23 = $23,000 QBI deduction.
Apply the minimum if needed
If your calculated deduction is less than $400 and you have any QBI, use $400 instead. Example: $1,500 income × 0.23 = $345 → use $400 minimum instead.
Cap at 20% of taxable income
The QBI deduction can't exceed 20% of your taxable income (minus net capital gains). For most freelancers this cap never triggers, but it's a safeguard against the deduction creating a loss.
Claim on Form 8995 or 8995-A
Report the deduction on your personal return (Form 1040) using Form 8995 (simple cases) or Form 8995-A (complex cases above the threshold). It's a below-the-line deduction — it reduces taxable income, not AGI.
Frequently Asked Questions
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What exactly is the One Big Beautiful Budget Act (OBBBA)?The One Big Beautiful Budget Act (OBBBA) is major 2026 federal tax legislation that made several changes beneficial to small businesses and freelancers. Key provisions include: raising the QBI deduction from 20% to 23%, making it permanent, adding a $400 minimum deduction, restoring 100% bonus depreciation, and restoring full R&D expensing for domestic research. For most freelancers, the QBI rate change is the most impactful provision.
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Does OBBBA affect my 2025 tax return?The OBBBA changes to QBI apply to tax years beginning on or after January 1, 2026. For your 2025 return (filed in 2026), the old 20% TCJA rate still applies. The 23% rate, $400 minimum, and expanded phase-in ranges take effect starting with your 2026 tax year return (filed in spring 2027).
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Does OBBBA change the SSTB list?No. The list of Specified Service Trades or Businesses is unchanged under OBBBA. The SSTB categories remain: health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, and investing/trading. Engineering and architecture were already excluded from SSTB treatment and remain excluded.
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If I have an S-Corp, does the 23% rate apply to my distributions?Yes. S-Corp distributions (the portion of profit beyond your reasonable salary) qualify for the 23% QBI deduction, just as they did at 20% under TCJA. Your W-2 salary from the S-Corp does not qualify — only the distribution/QBI portion. This is one of the primary reasons S-Corp elections remain attractive for freelancers earning $80,000+.
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Do I need to do anything differently to claim the 23% rate?No action required on your part. Your tax software and accountant will automatically apply the 23% rate for 2026 returns. The calculation is still on Form 8995 (simple cases) or Form 8995-A (above-threshold cases). The only difference is the rate is 0.23 instead of 0.20.
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Should I change my quarterly estimated tax payments because of OBBBA?Yes — the higher 23% QBI deduction means your taxable income is lower, which means your quarterly estimated payments can be slightly lower. If you previously calculated quarterly payments using the 20% rate, recalculate using 23%. The QBI calculator includes a quarterly impact estimate. You can also use TaxStackHub's Estimated Tax Generator for a full quarterly payment estimate.
Sources
- IRC § 199A as amended by the One Big Beautiful Budget Act (OBBBA)
- IRS Publication 535 — Business Expenses (2026 edition)
- IRS Rev. Proc. 2025-61 (2026 inflation adjustments)
- IRS Form 8995, Form 8995-A instructions (2026)
- Tax Cuts and Jobs Act (TCJA), Pub. L. 115-97 (original § 199A enactment)