How Much to Set Aside for Taxes as a Freelancer

As a freelancer or independent contractor, taxes work differently than they do for traditional employees. There's no employer withholding a portion of each paycheck and sending it to the IRS. Instead, you receive your full payment and are responsible for setting aside the tax portion yourself.

Get this wrong and you face an April surprise: a massive tax bill you didn't budget for, plus underpayment penalties. Get it right and taxes become a routine expense you barely think about.

This guide walks through exactly how much to set aside, how to calculate your personal rate, and a simple system to make it automatic.

The Short Answer#

Set aside 25–35% of your gross freelance income for federal taxes, plus 0–9% for state taxes depending on where you live.

This covers three things:

1. Self-employment tax — 15.3% for Social Security and Medicare
2. Federal income tax — 10–37% depending on your bracket
3. State income tax — 0–13.3% depending on your state

The exact percentage depends on your income level, deductions, filing status, and location.

The Two Types of Tax You Owe#

Self-Employment Tax (15.3%)#

This is the tax that surprises most new freelancers. As a W-2 employee, you paid 7.65% in payroll taxes and your employer paid the matching 7.65%. As a freelancer, you pay both halves — totaling 15.3% of your net earnings.

This breaks down as:

• 12.4% for Social Security (up to $184,500 in 2026, then it stops)
• 2.9% for Medicare (on all net earnings)
• +0.9% Additional Medicare Tax if you earn over $200,000 (single) or $250,000 (joint)

The silver lining: you can deduct half of your self-employment tax when calculating your income tax. And the 15.3% is calculated on 92.35% of your net profit, not the full amount.

Federal Income Tax (10–37%)#

Your federal income tax rate depends on your taxable income and filing status. For a single filer in 2026:

Your taxable income is your net profit minus deductions (standard deduction, QBI deduction, half of SE tax, etc.).

State Income Tax (0–13.3%)#

Where you live matters a lot:

• 0%: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming
• ~3%: Low flat-tax states (North Carolina, Pennsylvania, Indiana)
• ~5%: Mid flat-tax states (Illinois, Massachusetts, Georgia)
• ~6%: Virginia, Maryland, Missouri, Kentucky
• ~8%: High-bracket New York, Minnesota, Oregon, New Jersey
• 9.3%+: California (at $80k+), Hawaii, New York City

How to Calculate Your Personal Set-Aside Rate#

Here's a simple step-by-step method:

Step 1: Estimate your net profit#

Take your expected gross income and subtract legitimate business expenses.

Step 2: Calculate self-employment tax#

Net profit × 92.35% × 15.3% = SE tax

Step 3: Calculate federal income tax#

Start with net profit, subtract half your SE tax, subtract the standard deduction ($16,100 for single in 2026), and apply the QBI deduction (20% of net profit for most freelancers under $201,750). Apply the tax brackets above.

Step 4: Add state tax#

Research your state's income tax rate and apply it to your taxable income.

Step 5: Calculate the percentage#

Add SE tax + federal tax + state tax, then divide by your gross income.

Example#

A single freelancer in Texas earning $80,000 net profit:

• SE tax: $80,000 × 92.35% × 15.3% = $11,304
• Federal income tax: After standard deduction, half-SE deduction, and QBI deduction, taxable income ~$48,000 → ~$5,500
• State tax: $0 (Texas)
• Total: ~$16,804 → 21%

A single freelancer in California earning $120,000 net profit:

• SE tax: $120,000 × 92.35% × 15.3% = $16,956
• Federal income tax: ~$15,500
• State tax (~7% effective): ~$7,200
• Total: ~$39,656 → 33%

The 30% Rule of Thumb#

For most freelancers, 30% is a safe middle ground:

• 22–25%: Low earners in no-income-tax states
• 25–30%: Mid earners ($50k–$100k) in average states
• 30–35%: High earners or those in high-tax states
• 35–40%: Top-bracket earners ($200k+)

When in doubt, round up. Over-saving means you get a refund. Under-saving means penalties.

How to Make It Automatic#

1. Use a separate bank account#

Open a high-yield savings account specifically for taxes. Name it "Tax Savings" so you never confuse it with spending money.

2. Automate transfers#

Set up an automatic transfer for 30% of every client payment. If you use Reinvoice, you can track income as it comes in and see your estimated tax liability at a glance.

3. Pay quarterly#

The IRS requires quarterly estimated payments if you expect to owe $1,000+:

• Q1 (Jan–Mar): Due April 15
• Q2 (Apr–May): Due June 15
• Q3 (Jun–Aug): Due September 15
• Q4 (Sep–Dec): Due January 15

Pay via IRS Direct Pay — it's free and instantaneous.

4. Reconcile after each quarter#

Taxes are an estimate until you file. After each quarter, check whether your income is higher or lower than expected and adjust your next payment accordingly.

Common Mistakes to Avoid#

• Spending your tax money: The money in your account isn't all yours. The IRS's share isn't a bonus — don't spend it.
• Forgetting state taxes: Federal is only half the picture. Most states also require quarterly estimated payments.
• Ignoring deductions: Every legitimate business expense reduces both your income tax and self-employment tax. Track everything with Reinvoice's expense tracking.
• Missing a quarter: The IRS charges penalties per quarter. Missing Q1 costs more than making it up later.
• Using gross income instead of net: Your tax is based on net profit (revenue minus expenses), not gross revenue.

The Bottom Line#

Set aside 25–35% of every freelance payment. Keep it in a separate account. Pay the IRS quarterly. Track every deduction.

Start tracking your freelance income and taxes with Reinvoice →