How Much Should You Set Aside for Self-Employed Taxes?
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Set aside 25–35% of your net profit — not your revenue — and move it the day the money lands. The floor under that range is not a guess: self-employment tax alone is 14.1% of net profit (15.3% charged on 92.35% of it), and federal income tax sits on top, which is why 25% is the minimum sensible number and 30% is the one most solo operators should actually use. Below: where 14.1% comes from, a worked year, how to pick your own percentage, and the quarterly mechanics. (Organisational guidance, not tax advice — your situation and your state may differ, and your accountant decides.)
Why 14.1% is the floor, before any income tax
Self-employment tax replaces the Social Security and Medicare contributions an employer would have split with you. The rate is 15.3% — 12.4% Social Security plus 2.9% Medicare — but it is charged on 92.35% of net earnings, not 100%. So:
SE tax = net profit × 0.9235 × 0.153, which works out to
14.13% of net profit.
| Component | Rate | Applies to |
|---|---|---|
| Social Security | 12.4% | Earnings up to the annual wage base — $184,500 in 2026 |
| Medicare | 2.9% | All earnings, no cap |
| Additional Medicare | +0.9% | Above $200,000 single / $250,000 joint / $125,000 married filing separately |
Two things follow. Below the wage base — which is nearly everyone reading this — the full 15.3% applies to every dollar of net profit, so there is no threshold to "grow into". And half of your SE tax is deductible against income tax, which softens the combined bill but does not reduce the amount you must have in the bank.
A worked year
A freelancer nets $64,000 after expenses:
| Step | Amount |
|---|---|
| Net profit | $64,000.00 |
| × 92.35% = SE tax base | $59,104.00 |
| × 15.3% = self-employment tax | $9,042.91 |
| Deductible half (reduces taxable income) | $4,521.45 |
| SE tax as a share of net profit | 14.1% |
Now compare the rules of thumb against that single component:
| Set-aside | On $64,000 | Covers SE tax of $9,043? | Left for income tax |
|---|---|---|---|
| 25% | $16,000 | Yes | $6,957 |
| 30% | $19,200 | Yes | $10,157 |
| 35% | $22,400 | Yes | $13,357 |
That is the whole argument for 30%: it clears SE tax with roughly $10,000 left for federal income tax, and if you have over-saved, the surplus is yours. Under-saving is the expensive direction. Run your own figure through the self-employed tax calculator.
Picking your own percentage
| Nudge it toward 25% | Nudge it toward 35%+ |
|---|---|
| Lower profit, few other income sources | Profit above roughly $60k |
| A spouse's job withholds enough to cover you both | A state with its own income tax |
| Large deductions you are certain of | Rising year — this year's profit well above last year's |
| City or local taxes on top |
State tax is the most common reason a careful 25% still falls short. The percentages here are federal only; if your state taxes income, add its rate to whatever you land on.
The mechanic that makes it work: per-invoice, not per-year
An annual percentage is a plan; a per-payment transfer is a habit. When a $3,400 invoice lands, move $1,020 — 30% — to a separate account the same day. Do it before the money feels like yours. By the quarter's end the tax is simply there, and estimated payments become an administrative event rather than a crisis.
- Open a second account for tax only. A free one is fine. The separation is doing the work, not the interest.
- Transfer on the day each payment arrives, at your chosen percentage of the payment.
- Never borrow from it. The money is already spent; it is being held, not saved.
- Reconcile quarterly against actual profit — see bookkeeping in Google Sheets — and adjust the percentage if profit has moved.
Note the subtlety: 30% of each payment over-saves slightly, because payments are revenue and the tax is on profit after expenses. That drift is a feature. The freelancer with a small surplus in April is in a much better position than the one who was exactly right in theory and short in practice.
Quarterly estimated payments
Self-employed income has no withholding, so tax is generally paid in four estimated instalments through the year rather than once at filing. On the worked example, the SE portion alone is about $2,260.73 a quarter, before income tax.
There are safe-harbour rules that protect you from an underpayment penalty if you pay at least a set proportion of either the prior year's tax or the current year's — the thresholds depend on income level and change, so confirm the current figures rather than trusting a number in a blog post. The practical point is that paying something sensible each quarter is far better than paying nothing and settling up in April. Quarterly estimated taxes covers the schedule.
Common mistakes
- Setting aside a percentage of revenue as if it were profit — or worse, forgetting expenses reduce the bill at all. The number that matters is net.
- Forgetting state tax. The single most common reason a disciplined saver still comes up short.
- Keeping it in the main account "because I know not to spend it."
- Waiting until April. Estimated payments are not optional in the way people assume.
- Not recalculating after a good quarter. A percentage set against last year's profit under-saves in a year that grows.
- Missing deductions — every legitimate expense you fail to log raises net profit and the tax on it. See the deductions checklist.
Related: self-employed tax calculator · quarterly estimated taxes · deductions checklist · tracking expenses for taxes
Part of our system for running small business finances in Google Sheets.
Quick FAQ
How much should I save for taxes when self-employed?
25–35% of net profit, with 30% the sensible default. Self-employment tax alone is 14.1% of net profit before any income tax, so 25% is a floor rather than a target — and if your state taxes income, add its rate on top.
How much should I set aside for taxes on 1099 income?
The same 25–35% of profit, not of the 1099 amount. A 1099-NEC reports what a client paid you gross; your taxable figure is that minus your business expenses. Setting aside a percentage of the 1099 total over-saves, which is the safe direction to be wrong in.
Is it 30% of revenue or 30% of profit?
Profit. Tax is charged on what is left after legitimate business expenses. Using revenue is a common over-save — harmless to your tax bill, expensive to your cash flow, and it hides how the business is really performing.
What is the self-employment tax rate?
15.3% — 12.4% Social Security plus 2.9% Medicare — charged on 92.35% of net earnings, so about 14.1% of net profit. The Social Security portion applies up to the annual wage base ($184,500 in 2026); Medicare has no cap, and an extra 0.9% applies above $200,000 single / $250,000 joint.
How much should a freelancer set aside for taxes?
Move 30% of every payment to a separate account the day it arrives. On a $3,400 invoice that is $1,020. Per-payment transfers work where annual intentions do not, because the money never enters the account you spend from.
What if I set aside too much?
You end the year with a surplus that is simply yours. That is the good failure mode. The other direction — a bill in April with nothing behind it — is how self-employed people end up on payment plans, and it is entirely avoidable with a transfer that takes ten seconds.
Do I have to pay quarterly?
Self-employed income has no withholding, so tax is generally paid in four estimated instalments rather than once at filing, and there are safe-harbour rules that protect you from an underpayment penalty. The thresholds change, so check the current ones — but paying something sensible each quarter is always better than paying nothing until April.
This is general information to help you plan and save — not tax advice. Your exact numbers depend on your income, deductions, filing status and state. Confirm with a qualified tax professional.