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How Much Should a Freelancer Set Aside for Taxes?

Published 2026-10-03

Most freelancers should set aside somewhere between 20% and 30% of their net income for taxes, but the right number for you depends on your profit, your filing status and your state. The short version: start with 15.3% for self-employment tax, add your expected federal income tax rate on top, and adjust once you've filed a full year as a freelancer and know your actual numbers.

Why there's no single right percentage

When you're an employee, your employer withholds taxes automatically and the amount is based on tax tables built for your exact paycheck. As a freelancer, nothing is withheld, so you're estimating in advance how much of what you earn will eventually be owed. Two freelancers with the same gross income can owe very different amounts depending on their business expenses, other income, deductions and state of residence. A flat "set aside 25%" rule is a reasonable starting point, but it can leave you short if you're a high earner or in a high-tax state, or oversaving if your expenses are large relative to your income.

Step 1: Know the two taxes you're actually paying

As a self-employed person, you owe two separate things on your net profit (income after business expenses):

• Self-employment tax. As of 2026, this is 15.3% of your net earnings (12.4% for Social Security and 2.9% for Medicare), verified on IRS.gov. It applies if you have net self-employment earnings of $400 or more in the year.
• Federal income tax. This is calculated on your taxable income at your regular tax bracket, the same system employees use, just without withholding. State income tax applies on top if your state has one.

One detail that trips people up: self-employment tax isn't calculated on 100% of your net profit. The IRS has you multiply net earnings by 92.35% first, and that adjusted figure is what the 15.3% rate applies to (this accounts for the fact that an employee's share of payroll tax is calculated on their gross pay, not on pay net of the employer's own matching share). In practice this lowers your self-employment tax by a small amount compared to applying 15.3% straight to your net profit.

Step 2: Work out a rough starting percentage

Here's a simplified example for a single filer with no dependents:

• Net freelance profit for the year: $60,000
• Self-employment tax: $60,000 × 92.35% × 15.3% ≈ $8,477
• Half of self-employment tax is deductible from income before figuring income tax, which brings taxable income down somewhat
• After the 2026 standard deduction of $16,100 for single filers (verified on IRS.gov) and the self-employment tax deduction, taxable income lands in the lower-to-middle federal brackets for most moderate earners, commonly resulting in a federal income tax bill in the roughly 10-12% range of net profit for this income level — though your actual bracket depends on your full return
• Rough combined set-aside target: somewhere around 25% of net profit, before any state tax

This is a simplified illustration, not a tax projection for your specific return — it ignores credits, other income, retirement contributions and deductions you may qualify for. The quarterly tax set-aside calculator walks through this with your own numbers and gives you a percentage to apply to each payment you receive.

Step 3: Adjust the baseline for your situation

A flat 25-30% works as a starting point for many single freelancers with moderate income and no major additional income sources. Adjust from there:

• Higher income pushes you up. As taxable income rises into higher federal brackets, a bigger share of each additional dollar goes to income tax, so higher earners often land closer to 30-35%.
• A high-tax state pushes you up. States with their own income tax add another several percentage points on top of the federal number. States with no income tax don't add anything here.
• A spouse's W-2 income changes the math. If you file jointly and your household has other income, your freelance profit effectively stacks on top of it, which can push it into a higher bracket than it would hit on its own.
• Large business expenses push you down. The percentage applies to net profit, not gross revenue, so a freelancer with significant deductible costs (equipment, software, a home office, contractor help) owes less per dollar of gross income than one with minimal expenses.

Step 4: Set the money aside as it comes in, not at tax time

The safest habit is moving your set-aside percentage to a separate savings account the moment a payment arrives, before you've had a chance to budget around the full amount. Treat that account as money that was never really yours to spend. If you're also figuring out how to turn irregular paychecks into a stable monthly budget, see the guide to budgeting on an irregular income for the baseline-and-buffer approach this site uses throughout.

The IRS expects most self-employed people to pay estimated tax in four installments across the year rather than one lump sum in April, since there's no employer withholding it along the way. Due dates shift slightly year to year, so confirm the current schedule on IRS.gov's estimated taxes page or Form 1040-ES before each payment.

Step 5: Revisit your percentage once you've filed a full year

Your first year of estimating is the hardest, because you're guessing before you have a real result to check against. Once you've filed one full year as a freelancer, you'll know your actual effective tax rate (total tax owed divided by net profit), and you can set aside that percentage going forward, adjusting slightly if your income or expenses are trending up or down. Most freelancers land on a number through trial and error faster than through a perfect projection.

If your work involves driving for gig platforms specifically, the mileage deduction changes this math significantly — see the guide to taxes and mileage deductions for gig drivers for how that works.

Common mistakes to avoid

• Setting aside a percentage of gross revenue instead of net profit. This overstates what you actually owe and can tie up money you don't need to set aside.
• Using one flat percentage regardless of income level. A single rate ignores how tax brackets work, which can leave high earners underfunded.
• Forgetting state tax entirely. If your state has an income tax, it needs its own line in your set-aside math.
• Treating the tax account as available cash. Once money is earmarked for taxes, spending it from that account just creates a bigger shortfall later.

Frequently asked questions

Do I need to pay estimated taxes if I also have a W-2 job?

Possibly not, if your W-2 employer withholds enough extra from your paycheck to cover your freelance income's tax liability. Some freelancers increase their W-2 withholding instead of filing separate quarterly payments. Check current rules on IRS.gov or with a tax professional for your situation.

What happens if I set aside too little?

You may owe a balance at tax time plus a potential underpayment penalty if you didn't pay enough throughout the year. Setting aside slightly more than your estimate, when possible, is safer than cutting it close.

Should I set aside taxes before or after retirement contributions?

Self-employed retirement contributions can reduce your taxable income, which affects your tax bill. The details depend on which account type you use and are worth discussing with a tax professional, since this site doesn't provide investment or tax advice.

Does this change if I'm set up as an LLC or S-corp?

Entity structure can change how your income is taxed, particularly for S-corps. This guide assumes sole proprietor or single-member LLC taxation (the default for most freelancers). If you've elected a different structure, confirm your tax treatment with a tax professional.

This guide is general information, not financial, tax or legal advice.