How Much Should a Freelancer Set Aside for Taxes Each Year?

If you are self-employed in the United States, no employer takes tax out of your payments. Every invoice you are paid is income you must report, and the tax on it is your job to set aside. Many freelancers only notice this in April, when the bill arrives all at once.

For most freelancers, a sound starting habit is to set aside roughly 14% of net profit for self-employment tax, plus your estimated income tax, and move that money into a separate account each time you are paid. The exact figure depends on your profit, your income and your prior-year tax, so the steps below show you how to calculate your own number. The rules described here are the 2026 federal rules, checked in October 2026.

This guide is for people who pay US federal taxes. If you work in Zimbabwe, Nigeria, Kenya, South Africa or elsewhere, the rules are different, and you should use your own tax authority's guidance, such as ZIMRA, FIRS or SARS. The habit still applies: set money aside as you earn it.

What self-employment tax covers

Self-employment tax pays for Social Security and Medicare on your own earnings. The IRS describes it as a rate that "consists of 12.4% for Social Security and 2.9% for Medicare taxes." You usually must pay it if your net earnings from self-employment are $400 or more. The IRS also says that the amount subject to the tax is 92.35% of your net earnings from self-employment, a built-in adjustment that you do not need to calculate by hand.

The Social Security part has a limit. For 2026, the Social Security Administration lists the contribution and benefit base as $184,500. Earnings above that level do not pay the 12.4% Social Security part, but the 2.9% Medicare part continues.

Work out your self-employment tax

Start with your net profit for the year. Net profit is your business income minus the ordinary and necessary expenses of the business. Then follow three steps:

1. Multiply net profit by 92.35%.
2. Multiply that result by 15.3%, which is the combined rate of 12.4% and 2.9%.
3. Keep the answer. That is your self-employment tax for the year.

Here is the calculation with a round example. Suppose your net profit for 2026 is $60,000:

• Step 1: $60,000 × 92.35% = $55,410
• Step 2: $55,410 × 15.3% = $8,477.73, or about $8,478

Self-employment tax is about 14.1% of your net profit. The rest of the bill is income tax.

Add your income tax estimate

Income tax is calculated on your profit after certain deductions, and the figure depends on your other income and your filing status. A tax preparer, or the worksheets in Form 1040-ES, can help you estimate it. For this guide, assume an estimated federal income tax of $6,000 on the same $60,000 profit. This is a practice figure, not a prediction for your situation.

Add the two amounts:

• Self-employment tax: $8,478
• Estimated income tax: $6,000
• Total to set aside: $14,478, or about 24.1% of profit

That is the target. Your share will be higher or lower depending on your numbers, so recalculate it at least every quarter.

Know the quarterly due dates

If you expect to owe $1,000 or more for the year after withholding and credits, you will usually need to pay estimated tax during the year. Form 1040-ES for 2026 says you can pay all of your estimated tax by April 15, 2026, or in four equal amounts on these dates: April 15, 2026; June 15, 2026; September 15, 2026; and January 15, 2027.

If the amount you expect to owe for 2026, after withholding and credits, is less than $1,000, the form says you are not required to make estimated tax payments. Check this each year, because a good year can push you over the line.

Use the safe harbor to avoid the penalty

Predicting your exact tax is hard when income moves from month to month. The IRS offers a safe harbor based on last year's tax, which gives you a fixed target. According to Form 1040-ES for 2026, the base rule is 100% of the tax shown on your 2025 return. If your 2025 adjusted gross income was above $150,000 ($75,000 if married filing separately), the form uses 110% in place of 100%.

IRS Topic 306 also describes a second route: paying at least 90% of the tax for the current year. Whichever amount is smaller can be used as your target.

Worked example with round numbers

Imagine your 2025 return showed $12,000 of total tax, and your 2025 income was $90,000.

1. Your 100% safe harbor is $12,000.
2. Divide by four: $12,000 ÷ 4 = $3,000 for each installment.
3. Pay $3,000 on each of the four 2026 dates.

Now change one fact. Suppose your 2025 adjusted gross income was $160,000 and your 2025 tax was $20,000. The 110% safe harbor applies.

1. $20,000 × 110% = $22,000.
2. Divide by four: $22,000 ÷ 4 = $5,500 for each installment.

The safe harbor does not cover every case. It is a guide to avoiding an underpayment penalty, not a promise that you will owe nothing more when you file. If your profit rises sharply, you may still owe more at filing time, so keep your set-aside account topped up.

Set up a tax set-aside account

Open a separate savings account for tax. Then decide on a fixed percentage of each payment that goes into it. Many freelancers choose a round share such as 25% of each payment received, as a cautious starting point. If your expenses are high, a share of gross payments may be too cautious, so compare it against your net profit at each review.

For example, you receive a $4,000 payment from a client. At 25%, you move $1,000 into the tax account and keep $3,000 for everything else. The separate business and personal finances guide explains how to keep these accounts apart.

Once a quarter, run the calculation again with your year-to-date profit. If the set-aside account is behind, raise the percentage. If it is ahead, you may have room to pay an installment early or to keep a little more for slow months. The cash-flow forecast tool can show how the set-aside affects your bank balance month by month, and the simple cash-flow forecast guide explains how to build one.

Keep the records that support your numbers

Your tax figures are only as good as your records. Keep a copy of every invoice you issue, every payment you receive and every business expense, with the date and the purpose written down. Keep receipts for equipment, software, travel and business meals. If you drive for business, keep a log of business miles. A common rule of thumb is to keep these records for at least three years after you file, and longer for assets you still own.

Check your state's rules

Many US states also charge income tax, and some have their own rules for self-employed people. Your state tax agency publishes its own rates and due dates. The federal figures in this article do not cover state tax, so add your state's estimate to the set-aside and check whether your state expects its own quarterly payments.

Common mistakes to avoid

• Using gross income as the base for the calculation. Self-employment tax applies to net profit, so a gross-based set-aside is more cautious than it needs to be.
• Forgetting that cash and card payments are income too.
• Paying the quarterly amount from your everyday account, then finding the money has been spent.
• Waiting until the January installment to check the year. Review the numbers at every quarter.

A checklist for your tax set-aside

1. Track income and business expenses every month.
2. Calculate your net profit to date.
3. Estimate self-employment tax and income tax for the year.
4. Choose a percentage to move on each payment, and transfer it on the day you are paid.
5. Mark the 2026 installment dates in your calendar: April 15, June 15 and September 15, 2026, and January 15, 2027.
6. Compare your year-to-date set-aside with your prior-year tax, to check the safe harbor.
7. Review the plan in September, before the third installment.
8. Ask a qualified tax preparer to check your figures before you file.

Frequently asked questions

Do I have to pay estimated tax if I freelance only part time?

You may, depending on what you expect to owe. The IRS threshold is $1,000 owed after withholding and credits, as shown on Form 1040-ES. If you also have a salary with tax withheld, the withholding may cover your freelance tax. Use the worksheet in Form 1040-ES each year to check.

What if my income is uneven from month to month?

Uneven income is exactly why a safe harbor helps, because it is based on last year's tax rather than on your guess for this year. Ask a tax preparer whether a different method, such as the annualized income method on Form 2210, would suit you. Keep monthly records so that any method you use is supported by real numbers.

Can I use a simple percentage instead of a calculation?

A percentage is a useful starting point for a set-aside account, but it is not a tax calculation. Check it against your net profit at least every quarter, and adjust it when your expenses or income change.

Do I need to pay self-employment tax on small earnings?

Usually not. The IRS says you usually must pay self-employment tax when your net earnings from self-employment are $400 or more. Below that amount, you generally do not owe it, though other rules may still apply.

Sources

• IRS, Self-employment tax (Social Security and Medicare taxes)
• IRS, Topic 306: Penalties for underpayment of estimated tax
• IRS, Form 1040-ES (2026), Estimated Tax for Individuals
• IRS, Self-employed individuals tax center
• Social Security Administration, Contribution and benefit base

This article is general education, not tax advice. Check your figures with a qualified tax preparer before you file or pay.