If you’re self-employed, no employer is withholding taxes from your paychecks — which means it’s entirely up to you to set money aside before the IRS comes asking. Get this wrong, and you could end up with a painful bill (plus penalties) at tax time. Get it right, and taxes become just another predictable business expense.
Here’s exactly how much to save, why the number is higher than most people expect, and a simple system to make sure you’re never caught off guard.
The Short Answer: 25–30% of Your Net Income
As a general rule of thumb, freelancers should set aside 25% to 30% of their net self-employment income for taxes. If you’re in a higher tax bracket, live in a state with high income tax, or have significant self-employment income on top of a W-2 job, that number can climb to 35% or more.
This estimate covers two separate tax obligations:
- Self-employment tax — a flat 15.3% that covers Social Security and Medicare
- Federal (and possibly state) income tax — based on your tax bracket, which varies depending on total income, filing status, and deductions
Why It’s More Than Just «Income Tax»
This is the part that catches most new freelancers off guard. As a W-2 employee, your employer pays half of your Social Security and Medicare taxes automatically. As a freelancer, you’re both the employer and the employee — so you’re on the hook for the full 15.3% yourself.
That 15.3% self-employment tax applies to roughly 92.35% of your net earnings (after business expenses), on top of whatever federal and state income tax you owe. That’s why the «set aside 25-30%» rule exists: it’s not just income tax, it’s income tax plus self-employment tax, calculated on top of each other.
A Simple Way to Estimate Your Number
Here’s a straightforward way to land on a personalized percentage instead of guessing:
- Start with your net income — total freelance income minus legitimate business expenses (software, home office, equipment, mileage, etc.)
- Add 15.3% for self-employment tax
- Add your estimated federal income tax bracket — most freelancers in their first few years of business land somewhere between 12% and 22% federal, depending on total taxable income
- Add state income tax if applicable — this ranges from 0% (in states like Texas or Florida) to over 9% (in states like California)
Add those percentages together, and you’ll usually land somewhere between 25% and 35%. When in doubt, round up — it’s much less stressful to get a refund than to owe money you don’t have.
Example: A Freelance Graphic Designer
Let’s say a freelance graphic designer earns $60,000 in net income for the year, after deducting business expenses.
- Self-employment tax (15.3% on ~92.35% of net income): approximately $8,478
- Federal income tax (assuming a blended effective rate around 12-15%): approximately $7,500-9,000
- State income tax (assuming a moderate state, ~4%): approximately $2,400
Total estimated tax bill: roughly $18,000-20,000, or about 30-33% of net income.
If this freelancer had been setting aside 30% of every payment received throughout the year, they’d have the full amount ready — no scrambling, no surprise debt.
Where to Actually Put the Money
Setting aside a percentage only works if the money is somewhere you won’t accidentally spend it. A few options:
- A separate high-yield savings account dedicated only to taxes — transfer your set-aside percentage every time you get paid
- A dedicated «tax bucket» inside a business banking app that automatically splits incoming payments
- Quarterly transfers to a money market account if you prefer to earn interest while the funds sit untouched
Whatever method you choose, the key is automating it. If you have to manually decide to save every time you get paid, you’ll eventually skip it — usually right when a big expense comes up.
Don’t Forget Quarterly Estimated Payments
Setting money aside solves half the problem. The other half is actually sending it to the IRS on time. In the U.S., freelancers who expect to owe $1,000 or more in taxes for the year are generally required to make quarterly estimated tax payments, due in mid-April, June, September, and January of the following year.
Missing these deadlines can trigger underpayment penalties — even if you pay everything in full by the annual filing deadline. (We cover exactly how to calculate and pay these in our full guide to quarterly estimated taxes.)
Adjust as Your Income Changes
Your ideal savings percentage isn’t fixed forever. Revisit it:
- Every quarter, when you calculate your estimated tax payment
- Whenever your income jumps significantly — higher income can push you into a higher tax bracket, meaning you may need to save a larger percentage, not just a larger dollar amount
- At year-end, when you file your return and can see exactly how your actual tax bill compared to your estimate
The Bottom Line
There’s no single «correct» number that fits every freelancer, but 25-30% is a safe starting point for most people, and 30-35% is safer if you’re a higher earner or live in a high-tax state. The real goal isn’t precision — it’s consistency. Set aside your percentage from every single payment, keep it in a separate account, and you’ll never have to dread tax season again.
This article is for general informational purposes and isn’t personalized tax advice. Tax rates, brackets, and rules change from year to year — consult a licensed tax professional or CPA for guidance specific to your situation.