How the QBI Deduction Fits Into Your 2026 Estimated Tax Projection

Many self-employed professionals and business owners track revenue and expenses closely but still feel uncertain when it is time to estimate taxes. 

Several rules influence your actual taxable income, and one of the most important is the qualified business income deduction under Section 199A. This deduction may reduce up to 20% of certain business income, yet it often alters the numbers people expect to use when planning quarterly payments. Projected income, retirement plan contributions, and your business structure may all affect how much QBI you might receive. 

Read this guide to see how QBI fits into a 2026 estimated tax projection. You will see why it matters, how it shapes your taxable income, and how it may help you avoid surprises when you calculate each quarterly payment.

📌 Also read: 2026 Gig Economy Trends for Freelancers and Self-Employed Workers

How the QBI Deduction Works Under 2026 Rules

The qualified business income deduction comes from Section 199A and remains one of the most important tax rules for owners of pass-through businesses in 2026. It potentially reduces a portion of your ordinary business income at the individual level. Seeing how the pieces fit together helps you understand why this deduction may significantly shift your estimated tax projection.

The deduction is based on your combined qualified business income amount, which generally includes two parts:

✅ Up to 20% of QBI from each qualified trade or business
✅ 20% of qualified REIT dividends and qualified publicly traded partnership (PTP) income

Your total deduction is further limited by another rule. Under Section 199A, it cannot exceed 20% of your taxable income, after other deductions, but before applying the QBI deduction, and reduced by net capital gain. You receive the lesser of these two amounts.

The IRS walks you through the math on Form 8995 (simplified version) or Form 8995-A (full version for higher-income taxpayers or those with multiple businesses or loss carryforwards). These forms apply the required limits and send the final number to Form 1040 line 13, which appears in the section for “Other deductions.”

📝 Note: Even if you operate through an S corporation or partnership, all QBI ultimately flows to your personal return through Schedule K-1 before appearing on Form 8995 or Form 8995-A.

Who Qualifies for the QBI Deduction in 2026

Taxpayers other than C corporations may receive the QBI deduction if they earn QBI from a qualified trade or business. This typically includes:

✅ Sole proprietors filing Schedule C or F
✅ Partners in partnerships
✅ S corporation shareholders
✅ Certain trusts and estates that pass through business income

The business must generally meet the Section 162 trade-or-business standard or qualify under the rental real estate safe harbor, which includes specific recordkeeping and hour-tracking requirements.

QBI itself starts with your ordinary business income and adjusts for items that must be included or excluded. It often includes:

Income that does not count as QBI includes:

❌ W-2 wage income earned as an employee
❌ Reasonable compensation to S corporation shareholders
❌ Guaranteed payments to partners
❌ Capital gains and losses
❌ Dividends and certain substitute dividends
❌ Interest not allocable to a qualified trade or business
❌ Commodities and foreign currency gains or losses
❌ Most annuity income unrelated to the business
❌ Qualified REIT dividends and PTP income (these receive their own separate 20% component)

Income earned inside a C corporation never qualifies. Regulations also exclude the trade or business of performing services as an employee.

2026 Income Thresholds, Phaseouts, and SSTB Limits

The size of your deduction depends heavily on taxable income. As income rises, additional limits apply, and they may reduce or eliminate the deduction for certain service businesses. 

For 2026, the inflation-adjusted amounts are:

Married Filing Jointly

Married Filing Separately

Single, Head of Household, and Other Filers

Below the threshold, your deduction is generally up to 20% of QBI, subject only to the overall taxable-income limit. Wage and property limits do not apply at these levels, and specified service trade or business (SSTB) owners receive the same treatment.

Once taxable income enters the phase-in range, the rules change:

1. Wage and Property Limits

Your QBI deduction for each non-SSTB business may be limited to the greater of:

The deduction becomes a blended calculation as income rises within the range.

2. SSTB Phaseout

SSTBs include fields such as health, law, accounting, consulting, financial services, and businesses where reputation or skill is the principal asset.

Non-SSTB owners above the upper limit may still receive a deduction, but only within the wage and property rules.

How the QBI Deduction Reduces Your Final Income Tax (But Not SE Tax)

The IRS compares two numbers and allows the smaller:

The deduction appears as a separate line-item deduction on Form 1040 line 13. It reduces your income tax, not your business profit or self-employment tax base.

It does not reduce:

❌ Net earnings from self-employment
❌ Self-employment tax under Section 1402
❌ Net investment income for purposes of the 3.8% NIIT

This means you run your business income, above-the-line deductions, and self-employment tax first. Only after that sequence do you apply the QBI deduction to lower income tax.

📝 Note: This placement within Form 1040 is important. It explains why QBI may lower your estimated income tax but may not change your quarterly self-employment tax at all.

Building a 2026 Estimated Tax Projection That Includes QBI

A strong tax projection does more than subtract expenses from income. It brings together every part of your return, including the qualified business income deduction. Treat QBI as a core input in your projection, not something you guess at later. This helps you estimate taxable income accurately and reduces the chance of overpaying or falling short during the year.

Start With a Full-Year Income Forecast (Including Business, W-2, and Other Income)

Before applying the QBI rules, you need a realistic picture of all income that will feed into adjusted gross income. Publication 505’s Estimated Tax Worksheet begins with expected AGI, so this step matters for the entire projection.

Use your latest Form 1040 as a reference. Work through the income categories and project the 2026 amounts based on the information you already have. This may include signed contracts, expected sales patterns, planned client work, pay increases, or new income streams.

For business income, include:

Then add other income sources such as:

📝 Note: Keep separate columns for QBI-eligible business activities and non-QBI income. This small step saves time later when you calculate the deduction.

📌 Also read: Top 20 Tax Deductions Every Freelancer Should Know for 2026 Taxes

Estimate Your QBI Deduction for the Year

Once the income forecast is in place, break out the portion that may qualify as QBI. IRS rules and Forms 8995 and 8995-A take a business-by-business approach, so follow that method in your projection.

For each trade or business:

If you expect qualified REIT dividends or qualified PTP income, place those amounts in their own bucket. They get their own 20% deduction apart from QBI.

Apply the 20% rate to each business and to the REIT/PTP amounts to create a first estimate. Then check whether your projected taxable income falls below, within, or above the 2026 thresholds. Income levels determine whether wage limits, property limits, or SSTB phaseouts apply.

✅ If your projected taxable income stays below the thresholds, you generally model the deduction using the simplified Form 8995 approach.

✅ If your income is likely above the thresholds, build the more detailed Form 8995-A version into your projection. That may mean estimating W-2 wages, unadjusted basis of qualified property (UBIA), aggregation decisions, and SSTB reductions.

📝 Note: Your projected QBI deduction becomes one of the deductions you place in the estimated tax worksheet. A simple first draft is often enough early in the year. 

Plug QBI Into the IRS Estimated Tax Worksheets

Once the deduction is estimated, place it in the same spot it will appear on your actual tax return. Publication 505’s 2026 Estimated Tax Worksheet guides this process.

You subtract that total from AGI to get expected taxable income. This amount already includes the effect of QBI.

Next, you figure tentative income tax using the 2026 rate schedules or the capital gain and qualified dividend worksheet. After that, the worksheet adds other taxes such as:

You then subtract credits. The total on line 11c represents your estimated 2026 tax after the QBI deduction has reduced taxable income.

If your income varies by season, you can use the Annualized Estimated Tax Worksheet (Worksheet 2-7). It includes a QBI line in each column so you can adjust the deduction as income rises or falls during the year.

Apply the Safe Harbor Rules to Avoid Underpayment Penalties

Once you know your projected total tax, test whether your planned quarterly payments meet one of the IRS safe harbor rules under Section 6654. These rules help you avoid underpayment penalties.

You meet a safe harbor if your withholding plus estimated payments reach:

✅ At least 90% of your projected 2026 total tax, or
✅ At least 100% of your total tax from 2025 (or 110% if your 2025 AGI passed the high-income threshold)

These rules look at your total tax. That means regular income tax, self-employment tax, and net investment income tax, after credits and after the QBI deduction.

If you aim for the 90% current-year safe harbor, make sure projected withholding and estimated payments add up to at least 90% of your post-QBI total tax. If you prefer the prior-year safe harbor, confirm that your projected payments will reach the required percentage of your 2025 total tax.

After choosing the safer option, divide the remaining balance into quarterly payments that match your cash flow. Many business owners revisit their estimate midyear if income shifts or if the QBI deduction moves in a different direction than expected.

Planning Moves That Change Both QBI and Your Quarterly Payments

When QBI becomes part of your annual estimate, planning shifts from a simple profit discussion to a broader tax picture. The decisions you make during the year may change your QBI, your taxable income, and where you fall within the 2026 thresholds. Those thresholds influence wage limits, SSTB limits, and your final deduction. Choices such as when you recognize income, how you structure S corporation wages, and how much you contribute to retirement plans can all affect your quarterly payments. The best planning looks at these pieces together, not in isolation.

Adjusting Business Income and Deductions Around the 2026 Thresholds

Taxable income levels matter for the QBI deduction. Below the thresholds, most owners receive the full 20% deduction. Inside the phase-in ranges, wage and property limits begin to apply. Above the top of the ranges, SSTB owners lose the deduction entirely, and non-SSTB owners face the full wage and UBIA formulas.

Because of this structure, timing decisions may change how much QBI you keep.

Common planning moves:

✅ Shift business income between years. Moving a large payment or client billing into a different year may keep you below the top of the phase-in range. That can protect the QBI deduction if you are close to the threshold. In a year with lower income ahead, accelerating some income into 2026 might help you use a QBI benefit that would otherwise be limited later.

✅ Time deductible expenses. Equipment purchases, repairs, or professional fees can reduce 2026 taxable income when taken this year. Pulling deductions into 2026 might restore the full 20% QBI deduction if you are near the SSTB phaseout. Deferring expenses may make more sense for owners who risk dropping so low that the taxable-income limit becomes the binding cap.

✅ Balance S corporation wages and pass-through profit. More wages may reduce QBI, but they may also help with the wage-limit formulas for higher-income owners. Lower wages can increase QBI but may create tighter wage limits. A quick projection using Form 8995-A concepts often shows which mix works better.

Coordinating QBI With Retirement, Health Insurance, and SE Tax Deductions

Certain above-the-line deductions do more than reduce AGI. They also change QBI because they are allocable to the business. This includes:

These deductions reduce both AGI and QBI. A large retirement contribution may lower taxable income enough to bring you back below the QBI thresholds. At the same time, it may shrink your QBI base and reduce the deduction slightly.

These moves may also help with:

✅ Lower exposure to the 3.8% net investment income tax
✅ Lower exposure to the 0.9% Additional Medicare Tax
✅ Better positioning within the QBI income ranges

Because the effects move in more than one direction, the results are not always intuitive. Modeling a few contribution levels, rather than assuming “more is better”, is often the clearest way to see the impact on QBI and total tax.

Final Thoughts

The QBI deduction is part of the broader 2026 tax picture, and it works together with your quarterly estimated payments rather than as a separate calculation. When you project business income, other income, and key deductions, then add a realistic QBI estimate, you create a clearer view of your potential tax bill. That view helps you see how close you are to the 2026 thresholds and whether wage or property limits may shape your deduction.

A thoughtful projection also makes it easier to adjust decisions during the year, such as the timing of income and expenses, retirement contributions, or changes to withholding. This approach does not remove uncertainty, but it can reduce surprises and help you identify planning moves worth discussing with a qualified tax professional.

---

Disclaimer:

The Carry Learning Center is operated by The Vibes Company Inc. (“Vibes”) and contains generalized educational content about personal finance topics. While Vibes provides educational content and technology services, all investment advisory services discussed on this website are provided exclusively through its wholly-owned subsidiary, Carry Advisors LLC (“Carry Advisors”), an SEC registered investment adviser. The information contained on the Carry Learning Center should not be construed as personalized investment advice and should not be considered as a solicitation to buy or sell any security or engage in a particular investment, accounting, tax or legal strategy. Vibes is not providing tax, legal, accounting, or investment advice. You should consult with qualified tax, legal, accounting, and investment professionals regarding your specific situation.

The accounts, strategies and/or investments discussed in this material may not be suitable for all investors. All investments involve the risk of loss, and past performance does not guarantee future results. Investment growth or profit is never a guarantee. All statements and opinions included on the Carry Learning Center are intended to be current as of the date of publication but are subject to change without notice.

To access investment advisory services through Carry Advisors, you must be a client of Vibes on an eligible membership plan. For more information about Carry Advisors’ investment advisory services, please see our Form ADV Part 2A brochure and Form CRS or through the SEC’s website at www.adviserinfo.sec.gov.