How Much Should a Freelancer Set Aside for Taxes? A Percentage Guide by Income

The most common freelancer tax mistake is spending a payment before setting aside the tax on it. A single rule keeps you safe: move a fixed percentage of every payment into a separate savings account the day it arrives. The question is which percentage.

What you are actually paying for

Three taxes usually apply to freelance profit:

• Self-employment tax: about 15.3% of 92.35% of net profit, which works out to roughly 14.1% of profit, covering Social Security and Medicare.
• Federal income tax: based on your taxable income and bracket, reduced by deductions.
• State and local income tax: from zero in states without an income tax to well above 5% in some others.

Approximate percentages by income

The table below is a rough guide for a single filer with no other income, using the standard deduction and the qualified business income deduction, and covering federal taxes only. Your numbers will differ, so treat these as a starting point.

If you do not want to calculate anything, 25% to 30% of each payment is a sensible default for most freelancers earning between $40,000 and $100,000.

Set aside from profit, not revenue

Taxes are charged on profit, not on what clients pay you. If you pay $1,000 a month for software, equipment or contractors, those costs reduce your taxable profit. Many freelancers set aside a percentage of each payment and then true up each quarter once they know their real expenses.

A simple three-account system

1. Income account: every client payment lands here.
2. Tax account: a savings account where you move your chosen percentage the same day.
3. Spending account: a pay-yourself transfer on a fixed schedule.

When a quarterly payment is due, you pay it from the tax account without touching your living money.

Adjusting during the year

Revisit the percentage every quarter. Raise it if your income is climbing into a higher bracket or you have no business deductions yet. Lower it if you have large deductions such as health insurance premiums or retirement contributions that cut your taxable income. If you are unsure, a CPA or Enrolled Agent can calculate your exact rate in one short session.

Common mistakes

• Setting aside only for income tax and forgetting self-employment tax.
• Using last year's percentage after a big jump in income.
• Keeping tax money in the same account as spending money.
• Waiting until January to learn what you owe.

Frequently asked questions

Is 30% too much?

For a first year, a little over-saving is a good mistake. Any leftover becomes a refund or a cushion for your next payment.

Does my other job change this?

Yes. Wages from an employer push your freelance profit into a higher bracket, so use a higher percentage unless you increase your W-4 withholding.

Do I set aside money for each client separately?

No. Apply the same percentage to every payment and reconcile when you file.