How much to set aside for taxes when you're self-employed

What does the set-aside need to cover?

• Self-employment tax. 15.3% applied to 92.35% of net profit, which works out at about 14.1% of profit, below the $184,500 Social Security wage base for 2026. See self-employment tax explained.
• Federal income tax on your profit, after the deduction for half of self-employment tax, the standard or itemized deduction, and the qualified business income deduction. See the QBI deduction explained.
• State income tax, where your state has one.

How do you work out your percentage?

1. Start from last year's return

   Add up your total federal tax, including self-employment tax, and any state tax.

2. Divide by last year's net profit

   That is your effective rate on business income, if most of your income was from the business.

3. Adjust for this year

   Add a few points if income is rising into a higher bracket, or if you have no deductions you had last year.

4. Apply it to every payment

   Move that percentage of each client payment into a tax account the day it arrives.

In your first year, with no previous return, a starting point of 25% to 30% of profit is common for many freelancers, adjusted up for higher incomes or high-tax states. Revisit it after the first quarter.

What does it look like in practice?

A freelancer expects $60,000 of profit in 2026. Self-employment tax alone is about $8,478. Adding federal income tax at their rate and state tax, their set-aside comes to about $15,000 to $18,000 for the year, or 25% to 30%. They move 27% of every payment into a savings account and pay estimates from it each quarter.

How do you use the money?

Pay quarterly estimated tax from the account: April 15, June 15 and September 15, 2026, and January 15, 2027 for 2026. Paying at least 100% of last year's total tax, or 110% if last year's income was over $150,000, avoids the underpayment penalty. See the underpayment penalty and safe harbors. See estimated quarterly taxes and Form 1040-ES.

How can you owe less?

• Claim every legitimate business expense. See deductible business expenses.
• Contribute to a SEP IRA or Solo 401(k), which reduces income tax.
• Consider S corporation status once profit is high and steady. See when an S corp election saves tax.

What are the common mistakes?

• Setting aside for income tax only and forgetting self-employment tax.
• Keeping the money in the everyday account, where it gets spent.
• Not raising the percentage when income grows.

This guide is general information. It is not tax or legal advice for your situation.