How Does the OBBBA Law Affect Self-Employed Workers? (w/Examples) + FAQs

This article reflects federal rules as of June 2026 and covers tax year 2025 (the 2026 filing season), with noted 2026 changes. State rules vary — confirm current figures before you file. Tax law changes fast.

Quick Answer

The OBBBA cuts taxes for most self-employed workers in 2025 by making the 20% QBI deduction permanent, restoring 100% bonus depreciation, raising the SALT cap to $40,000, and adding a temporary tip deduction (2025–2028). Many save thousands, but service businesses face limits.

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025 as Public Law 119-21, reshapes how freelancers, gig workers, and small business owners are taxed. If you file a Schedule C, run an S corporation, or earn 1099 income, the law touches your business return and your personal return at the same time — and a few of its best breaks vanish after 2028 if you do not plan around them now.

The stakes are real. The 20% Qualified Business Income (QBI) deduction was set to expire at the end of 2025, and its loss would have raised taxes on an estimated 26 million small businesses, according to the National Federation of Independent Business. OBBBA made it permanent. Here is what every self-employed reader gains, loses, and must do next.

💰 How to keep claiming the 20% QBI deduction — now permanent — and the new $400 minimum that starts in 2026.
🧾 How 100% bonus depreciation lets you write off equipment in full the year you buy it.
🍽️ Whether the new “no tax on tips” deduction applies to your trade — and the SSTB trap that blocks many.
🏠 How the bigger $40,000 SALT cap can finally make itemizing worth it for high-tax-state filers.
📋 The exact forms, deadlines, and records you need so you do not leave money on the table.

What OBBBA Actually Changes for the Self-Employed

OBBBA is not one rule — it is a bundle of changes that hit different parts of your tax life. Some lower your business profit (bonus depreciation, R&D expensing). Some lower your personal taxable income (QBI, SALT, the tip deduction). Understanding which bucket a provision falls into tells you where it shows up on your return and how much it can save you.

The law also splits into two timelines. A few provisions are permanent, meaning you can plan around them for years. Others are temporary, set to expire (sunset) after 2028. Mixing these up is the most expensive mistake a self-employed taxpayer can make, because building a long-term plan on a rule that disappears in three years leaves you exposed.

Here is the short map of the provisions that matter most to a one-person business or small pass-through:

QBI deduction (Section 199A): Now permanent. Up to 20% of qualified business income.
100% bonus depreciation: Restored for property placed in service after January 19, 2025.
SALT cap: Raised from $10,000 to $40,000 starting in tax year 2025.
No tax on tips: New deduction up to $25,000, tax years 2025–2028.
No tax on overtime: New deduction — but it almost never helps the self-employed.
1099-NEC/MISC threshold: Rises from $600 to $2,000 starting in 2026.
R&D expensing: Domestic research costs deductible immediately again.

Each of these gets its own deep section below, with the dollar caps, the income phase-outs, a worked example, and the exact step to claim it.

The QBI Deduction Is Now Permanent

The Qualified Business Income deduction lets eligible self-employed people and pass-through owners deduct up to 20% of their qualified business income from taxable income, as explained by Thomson Reuters. It was created in 2017 and was scheduled to expire after 2025. OBBBA made it permanent, so it is no longer a ticking clock.

The consequence of this change is steady, year-after-year savings. A sole proprietor with $100,000 of qualified business income who clears the income tests can deduct $20,000, dropping the income the IRS taxes to $80,000. Losing that deduction would have raised the tax bill of a 22%-bracket filer by roughly $4,400 in a single year.

Starting in tax year 2026, OBBBA also adds a new $400 minimum QBI deduction for anyone with at least $1,000 of qualified business income, per Collective’s summary. This helps part-time freelancers and new businesses in low-income years who would otherwise get little or nothing.

A common misconception is that all business income qualifies. It does not — the deduction is limited above certain income levels, and Specified Service Trades or Businesses (SSTBs) face extra limits. What you should do: claim it on Form 8995 if your taxable income is under the threshold, or the longer Form 8995-A if it is over, and keep clean records of your net business profit.

Who Counts as an SSTB

An SSTB is a “specified service trade or business” — fields where the main asset is the owner’s skill or reputation. This includes consultants, lawyers, accountants, doctors, financial advisors, and performers. The category matters because SSTB owners lose the QBI deduction once their income climbs past the phase-out range.

The consequence is sharp. A high-earning solo consultant (an SSTB) above the upper income limit gets zero QBI deduction, while a high-earning solo manufacturer (not an SSTB) may still get the full 20%. Two businesses, same profit, very different tax bills.

What you should do: figure out early whether your trade is an SSTB, because it drives both your QBI deduction and your eligibility for the new tip deduction below. If your income is near the threshold, retirement-plan contributions that lower taxable income can sometimes restore part of the deduction.

100% Bonus Depreciation Is Back

Depreciation normally forces you to deduct the cost of business equipment over several years instead of all at once. Bonus depreciation lets you write off the full cost in year one. After phasing down since 2022, OBBBA restores 100% bonus depreciation for qualifying property placed in service after January 19, 2025, according to Collective.

The consequence is an immediate cut to your taxable business profit, which flows straight to a lower personal tax bill. If you buy a $30,000 piece of qualifying equipment and place it in service in 2025, you can deduct the entire $30,000 that year instead of spreading it across five or more.

A common misconception is that every purchase qualifies for the full write-off. Business vehicles, for example, face separate limits, and the property must be used more than 50% for business. What you should do: report it on Form 4562, keep the receipt and the in-service date, and time large purchases for a year when the deduction does the most good.

The SALT Cap Jumps to $40,000

State and local taxes (SALT) — your state income tax and property tax — were capped at a $10,000 federal deduction since 2017. OBBBA raises that cap to $40,000 starting in tax year 2025, as Collective notes. For self-employed people in high-tax states, this can make itemizing worthwhile again.

The consequence is a potentially large drop in taxable income. A freelancer in California or New York who pays $35,000 in combined state income and property tax could deduct only $10,000 before — now they can deduct the full $35,000 if they itemize, a $25,000 swing.

A common misconception is that the higher cap helps everyone. It only helps if your itemized deductions beat the standard deduction ($15,750 single / $31,500 married for 2025). What you should do: add up your state tax, property tax, mortgage interest, and charitable gifts, then compare to the standard deduction before choosing to itemize on Schedule A.

No Tax on Tips — With a Big Catch

OBBBA creates a new deduction for qualified tips, effective for tax years 2025 through 2028, and the IRS confirms it applies to both employees and self-employed individuals. The maximum annual deduction is $25,000, and it phases out for modified adjusted gross income over $150,000 ($300,000 for joint filers).

For self-employed workers there are two hard limits. First, the deduction cannot exceed your net income from the trade in which the tips were earned. Second — and this blocks many — self-employed individuals in an SSTB are not eligible, per the IRS fact sheet. Your occupation must also appear on the IRS list of jobs that customarily received tips on or before December 31, 2024.

A common misconception is that this erases all tax on tips. It does not — it is an income-tax deduction only, so self-employment tax (Social Security and Medicare) still applies to tip income. What you should do: confirm your job is on the IRS tip-occupation list, track tips separately in your books, and report them properly so you can claim the deduction.

No Tax on Overtime Rarely Helps the Self-Employed

OBBBA also adds a deduction for qualified overtime, up to $12,500 ($25,000 joint) for tax years 2025–2028, with the same $150,000/$300,000 phase-outs, per the IRS. But it applies only to the extra “half” of time-and-a-half pay required by the Fair Labor Standards Act and reported on a W-2 or 1099.

The consequence for the self-employed is simple: you almost never qualify. The FLSA overtime rules govern employees, not business owners paying themselves. A solo freelancer cannot pay themselves “overtime” and deduct it.

What you should do: if you also hold a W-2 job with overtime, you may claim it for that income — but do not expect this provision to touch your self-employment earnings. Treat it as an employee benefit, not a business one.

Higher 1099 Reporting Thresholds

Starting in 2026, OBBBA raises the reporting threshold for Form 1099-NEC and 1099-MISC from $600 to $2,000, adjusted for inflation each year after, according to Collective. If you pay a contractor less than $2,000 in a year, you no longer have to issue a 1099.

The consequence cuts both ways. As a payer, you file fewer forms and face less penalty risk. As a freelancer, you may stop receiving 1099s from smaller clients — but that income is still taxable. The IRS can review payments of any size.

A common misconception is that no 1099 means no tax. False — you must report all income whether or not a form arrives. What you should do: keep your own complete records, hold on to every W-9, and report all earnings even when no 1099 shows up.

Which Situation Applies to You?

OBBBA does not treat every self-employed person the same. Use this quick branch to find the sections that matter most for you:

You are a freelancer or sole proprietor (Schedule C): Focus on QBI, bonus depreciation, and the 1099 threshold.
You run an S corporation: QBI, bonus depreciation, and reasonable-salary planning matter most.
You are a high earner in a service field (SSTB): Watch the QBI phase-out and your exclusion from the tip deduction.
You earn tips (hairstylist, manicurist, tour guide): Check the IRS tip-occupation list and the $25,000 cap.
You live in a high-tax state (CA, NY, NJ): The $40,000 SALT cap may finally make itemizing pay off.
You buy major equipment: Time purchases to use 100% bonus depreciation.

Worked Example: A Freelancer’s Full Tax Picture

Numbers make this concrete. Below is a fully worked example you can copy with your own figures.

Maria, a freelance graphic designer (not an SSTB), single, tax year 2025:

Net business profit (Schedule C): $90,000
She buys a $6,000 computer setup, placed in service March 2025
She lives in California and pays $12,000 in state income tax

Step 1 — Bonus depreciation: She deducts the full $6,000 on Form 4562, lowering net profit to $84,000.

Step 2 — Half of self-employment tax deduction: Roughly $5,900 is deducted above the line, leaving adjusted income near $78,100 for QBI purposes.

Step 3 — QBI deduction: 20% of her $84,000 qualified business income is $16,800, subtracted from taxable income.

Step 4 — SALT: Because the cap is now $40,000, she itemizes her $12,000 state tax plus other deductions instead of taking the standard deduction, if the total exceeds $15,750.

The combined effect of bonus depreciation plus the now-permanent QBI deduction trims her taxable income by more than $22,000 versus a no-OBBBA world, saving a 22%-bracket filer roughly $5,000 in federal tax for 2025.

Three Common Self-Employed Scenarios

The tables below show how OBBBA plays out for three typical filers. Each is a 2-column view of the situation and the result.

The Solo Consultant (SSTB, high income)

Their Situation	What OBBBA Does
$250,000 net profit, consulting (SSTB)	QBI deduction fully phased out at this income
Earns occasional client “tips”	Not eligible for tip deduction — SSTB excluded
Buys $20,000 of equipment	Can still use 100% bonus depreciation
Pays $30,000 state tax in NY	Can deduct up to $40,000 SALT, big win

The Gig Driver (non-SSTB, modest income)

Their Situation	What OBBBA Does
$40,000 net profit driving	Full 20% QBI deduction available
In 2026, earns under $1,000 some months	New $400 minimum QBI deduction may apply
Receives some rider tips	May qualify if occupation is on IRS list
Buys a $1,500 phone/gear	Full write-off via bonus depreciation

The Etsy Seller (non-SSTB, growing)

Their Situation	What OBBBA Does
$70,000 net profit selling crafts	Full 20% QBI deduction
Buys $10,000 printing equipment	Deducts all $10,000 in year one
Pays a contractor $1,800 in 2026	No 1099 required (under $2,000)
Lives in no-income-tax Texas	SALT change has little effect

Named Examples: The Rules in Action

David, a freelance copywriter in Texas: David nets $80,000 and is not an SSTB. He claims the full 20% QBI deduction ($16,000) on Form 8995 and writes off a new $4,000 laptop and desk with bonus depreciation. His goal — lower his taxable income — works cleanly because his field qualifies and his state has no income tax to worry about.

Priya, a solo CPA in California: Priya nets $300,000 from her accounting practice, an SSTB. Above the income threshold, she gets no QBI deduction and cannot claim the tip deduction either. Her one OBBBA win is the $40,000 SALT cap, which lets her deduct far more of her steep California state tax than the old $10,000 limit allowed.

Carlos, a self-employed barber in New York: Carlos nets $55,000 and barbering is a tipped, non-SSTB occupation. He qualifies for the new tip deduction up to his net business income, claims the full QBI deduction, and writes off $3,000 of new chairs and clippers. His income is under $150,000, so no phase-out cuts his tip deduction.

Deadlines, Costs, and Timing

The key federal deadline is your annual return, due April 15, 2026 for tax year 2025, or October 15 with an extension. Self-employed people also pay quarterly estimated taxes — missing those triggers underpayment penalties even if you pay in full by April.

For costs, DIY tax software for a Schedule C filer typically runs $100–$200, while a CPA preparing a self-employed return often charges $400–$1,000 depending on complexity. An S corporation return costs more. The tip and overtime provisions got IRS penalty relief for 2025 because reporting systems were still catching up, so expect some forms and guidance to keep evolving.

The biggest timing lever is the 2028 sunset. The tip, overtime, car-loan-interest, and senior deductions all expire after tax year 2028 unless Congress extends them. Plan to use them while they exist, but do not build a permanent strategy on them.

Mistakes to Avoid

Treating the tip deduction as permanent. It sunsets after 2028, and planning around it long-term leaves you exposed to a sudden tax increase.
Assuming you qualify for the tip deduction as an SSTB. SSTB owners are excluded, so claiming it triggers an IRS correction and possible penalty.
Forgetting self-employment tax still applies to tips. The deduction is income-tax only, so under-withholding here causes a surprise balance due.
Skipping income because no 1099 arrived. All income is taxable, and unreported income can trigger penalties plus interest if the IRS matches records.
Itemizing without checking the math. If your itemized total is below the standard deduction, itemizing for SALT actually raises your taxable income.
Misclassifying a vehicle purchase as full bonus depreciation. Business vehicles face separate caps, so over-deducting invites an audit adjustment.
Ignoring quarterly estimates. Even with new deductions, skipping estimated payments brings underpayment penalties at tax time.

Do’s and Don’ts

Do confirm whether your trade is an SSTB, because it controls both QBI and tip eligibility.
Do keep dated receipts for equipment, since bonus depreciation requires proof of the in-service date.
Do track tips separately in your books so you can substantiate the deduction.
Do compare itemizing to the standard deduction every year, because the right answer changes with your numbers.
Do pay quarterly estimates, since deductions reduce but rarely erase your self-employment tax.
Don’t assume no 1099 means no tax — report all income regardless of forms.
Don’t count on the temporary deductions past 2028 without a backup plan.
Don’t deduct personal-use property as business equipment, which invites penalties.
Don’t ignore state conformity — your state may tax income the federal deductions exempt.
Don’t skip professional help when your income nears a phase-out threshold, where small moves change big dollars.

Pros and Cons of OBBBA for the Self-Employed

Pro: The permanent QBI deduction removes years of uncertainty, letting you plan with confidence.
Pro: 100% bonus depreciation rewards investing in your business with an immediate full write-off.
Pro: The $40,000 SALT cap delivers real relief to high-tax-state filers who were capped at $10,000.
Pro: The $400 minimum QBI deduction helps part-timers and new businesses with low profit.
Pro: Higher 1099 thresholds cut paperwork and penalty risk for those who hire contractors.
Con: Key deductions (tips, overtime, car loan interest) sunset after 2028, creating a future cliff.
Con: SSTB owners are shut out of both the tip deduction and the high-income QBI deduction.
Con: The overtime deduction offers almost nothing to true self-employed workers.
Con: State non-conformity can erase the benefit at the state level even when the federal break applies.
Con: New reporting rules created confusion in 2025, requiring IRS penalty relief and ongoing guidance.

Does My State Tax This?

Start with federal, then check your state — never assume they match. Many states do not automatically conform to new federal deductions, so a break on your federal return may not lower your state tax at all.

California does not conform to federal QBI or bonus depreciation, so those federal savings do not carry to your California return. The state has its own depreciation rules and taxes business income differently.
New York partially decouples from federal bonus depreciation and has its own rules, so confirm with the state’s Department of Taxation before assuming the federal write-off applies.
No-income-tax states (Texas, Florida, Washington, Nevada, and others) do not tax personal income at all, so federal income-tax deductions have no state-level mirror to worry about — and the SALT change matters less because you have no state income tax to deduct.

What you should do: look up your state’s conformity rules or ask a local tax professional, because a deduction that saves you federal tax can be fully or partly added back on your state return.

What to Do Next

Take these steps in order to capture your OBBBA benefits for tax year 2025:

Determine your SSTB status — it controls your QBI and tip eligibility.
Gather records — net profit figures, equipment receipts with in-service dates, state tax paid, and any tip logs.
Run the QBI deduction on Form 8995 (or 8995-A if over the threshold).
Claim equipment write-offs on Form 4562 for property placed in service after January 19, 2025.
Compare itemizing vs. standard deduction using the new $40,000 SALT cap.
Check the IRS tip-occupation list if you earn tips, and verify you are not an SSTB.
Confirm state conformity before counting on any federal break at the state level.
Call a CPA or tax attorney if your income is near a phase-out, you run an S corp, or you are unsure how the rules combine — a worked-through plan often pays for itself.

This article is educational and not a substitute for advice from a licensed tax professional for your specific situation. When your income nears a phase-out, you run a pass-through entity, or you face an IRS notice, the help of a CPA or tax attorney — who can model your return and confirm state conformity — is worth the cost.

Frequently Asked Questions

Is the QBI deduction permanent now? Yes. OBBBA made the 20% Qualified Business Income deduction permanent starting in 2025. It was set to expire after 2025, but the law removed that sunset, so eligible self-employed and pass-through owners can keep claiming it.

How much is the new minimum QBI deduction? $400. Starting in tax year 2026, anyone with at least $1,000 of qualified business income can claim a $400 minimum QBI deduction, which helps part-time freelancers and low-income years.

Can self-employed people claim the no-tax-on-tips deduction? Yes, for tax years 2025–2028, up to $25,000 and capped at your net business income. But self-employed workers in a Specified Service Trade or Business (SSTB) are excluded, and your occupation must be on the IRS tip list.

Does the tip deduction remove self-employment tax on tips? No. The deduction lowers income tax only. Self-employment tax for Social Security and Medicare still applies to your tip income, so set money aside for it.

What is the new SALT deduction cap? $40,000. Starting in tax year 2025, OBBBA raised the state and local tax deduction cap from $10,000 to $40,000, which helps self-employed filers in high-tax states who itemize.

When does 100% bonus depreciation apply? After January 19, 2025. Qualifying property placed in service after that date can be fully written off in year one on Form 4562, though business vehicles face separate limits.

Did the 1099 reporting threshold change? Yes. Starting in 2026, the Form 1099-NEC and 1099-MISC threshold rises from $600 to $2,000, indexed for inflation. You still must report all income even without a 1099.

Can the self-employed claim the no-tax-on-overtime deduction? No, in nearly all cases. The overtime deduction applies to FLSA overtime paid to employees on a W-2. Business owners cannot pay themselves deductible overtime.

Do the new deductions expire? Yes. The tip, overtime, car-loan-interest, and senior deductions all sunset after tax year 2028. The QBI deduction, bonus depreciation, and SALT cap changes do not have that same 2028 cliff.

Does my state follow these federal OBBBA deductions? Often no. Many states, including California, do not conform to QBI or bonus depreciation. Always check your state’s conformity rules before assuming a federal break lowers your state tax.

What form do I use to claim QBI? Form 8995. Use Form 8995 if your taxable income is under the threshold, or the longer Form 8995-A if it is above. Both flow your deduction onto your 1040.

When is the tax deadline for these 2025 changes? April 15, 2026. That is the filing deadline for tax year 2025, or October 15, 2026 with an extension. Self-employed filers also owe quarterly estimated taxes throughout the year.

Word count: approximately 3,650 words. This article reflects federal rules as of June 2026 for tax year 2025; confirm current figures before filing.

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