How Much Should I Set Aside for Taxes as a Freelancer?
You just got paid $2,000 for a project. It hits your account and it feels great. Then someone tells you to set aside 30% of it for taxes and suddenly it feels a lot less great.
Here's the thing — that advice is roughly correct, and understanding why makes it a lot less painful to follow.
The Short Answer: 25% to 30%
For most freelancers earning a reasonable income in the US, setting aside 25% to 30% of every payment is the right starting point. That covers both self-employment tax and federal income tax for the majority of people in the middle income range.
If you're in a state with income tax, add another 3% to 5% on top of that. California freelancers should be closer to 35%. Texas, Florida, and Nevada freelancers can stay at the lower end since there's no state income tax.
Set that money aside every single time a payment lands. Not at the end of the month. Not when quarterly taxes are due. Every payment, immediately, into a separate account you don't touch.
Why Freelance Taxes Are Higher Than You'd Expect
When you work a regular job, your employer covers half of your Social Security and Medicare taxes. You pay 7.65% and they pay 7.65%, for a combined 15.3% going to FICA.
When you're self-employed, you're both the employee and the employer. You pay the full 15.3% yourself. That's called self-employment tax, and it applies to 92.35% of your net earnings — meaning your income after business expenses.
On top of that, you still owe regular federal income tax on your profits, just like any other taxpayer. So you're paying self-employment tax plus income tax, which is why the total bill surprises so many first-time freelancers.
How the Math Actually Works
Let's put real numbers on it. Say you earned $60,000 in freelance income this year and had $5,000 in legitimate business expenses. Your net profit is $55,000.
Self-employment tax applies to 92.35% of that: $55,000 times 0.9235 equals $50,793. The self-employment tax on that is $50,793 times 15.3% equals roughly $7,771.
Here's a small piece of good news: you can deduct half of that self-employment tax from your gross income when calculating your federal income tax. So your taxable income for federal purposes becomes $55,000 minus $3,886 (half of SE tax) equals $51,114.
As a single filer, after the $15,000 standard deduction, your taxable income is about $36,114. Federal income tax on that comes out to roughly $4,160.
Total federal tax bill: $7,771 in self-employment tax plus $4,160 in income tax equals $11,931. On $60,000 gross income that's about 19.9% — close to 20% just for federal. Add state taxes and you're at 25% to 30%.
That's where the 25% to 30% rule comes from. It's not arbitrary.
What Counts as a Business Expense
Before you calculate what you owe, you subtract legitimate business expenses from your gross income. This is one of the biggest advantages of being self-employed — expenses that reduce your taxable income reduce both your income tax and your self-employment tax.
Common freelance deductions include a home office if you use part of your home exclusively for work, equipment and software you use for your business, internet and phone costs proportional to business use, professional subscriptions and tools, health insurance premiums if you're self-employed and not eligible for employer coverage, and retirement contributions to a SEP-IRA or Solo 401(k).
Keep receipts for everything. A $500 software subscription deduction saves you roughly $150 in combined taxes at a 30% effective rate. These add up fast.
Quarterly Estimated Taxes: The Part Nobody Warns You About
As a freelancer you don't just pay taxes once a year at filing time. The IRS expects you to pay estimated taxes four times a year — roughly every quarter — because you don't have an employer withholding taxes from each paycheck automatically.
The 2026 quarterly due dates are April 15, June 16, September 15, and January 15, 2027.
If you underpay significantly throughout the year, the IRS charges an underpayment penalty on top of what you owe. It's not massive, but it's annoying and completely avoidable if you're setting money aside consistently and paying quarterly.
The simplest approach: pay 25% to 30% of every payment into a dedicated savings account, then transfer the accumulated balance to the IRS four times a year. You don't need complicated spreadsheets. You need a separate account and a calendar reminder.
What Happens if You Don't Set Anything Aside
Tax season arrives, your accountant tells you that you owe $11,000, and you have $200 in your checking account. This is not a hypothetical — it's the most common freelance financial crisis there is.
The IRS will work out a payment plan with you, but you'll pay interest on the balance and potentially penalties on top. The money doesn't go away just because you didn't save it. It just becomes a debt you're paying off while still trying to run your business.
Setting money aside isn't optional. It's the cost of being your own boss.
A Practical System That Actually Works
Open a second savings account specifically for taxes. Name it something obvious — "Tax Money," "Do Not Touch," whatever makes it clear. Every time a client pays you, transfer 30% into that account immediately, the same day.
Don't wait until you feel like you can afford to. You can always afford to set aside 30% because that 30% was never really yours in the first place — it belongs to the IRS. Thinking of it that way makes it much easier to leave it alone.
When quarterly estimated tax payments are due, transfer what you owe from that account to the IRS through IRS Direct Pay — it's free, takes five minutes online, and you're done. Whatever's left in the account after you file your annual return is either your refund or a cushion for next quarter.
For a quick look at how your take-home compares to a traditional W-2 employee at the same income level, the paycheck calculator shows what someone earning the same gross income would net as an employee — a useful benchmark for understanding how much of the tax burden you're absorbing as a freelancer.