Learn · Estimated taxes

How much should I set aside for taxes?

The short answer for most self-employed people: 25 to 30% of your profit, moved somewhere you will not touch it. The long answer is that the right percentage is knowable, and depends on three things you can pin down in a few minutes. Here is both.

Where the 25 to 30% rule comes from

Self-employment income carries two stacked taxes. Self-employment tax runs about 15.3% (Social Security and Medicare, both halves, since you are employer and employee). Income tax then applies on top, at whatever bracket your total income lands in. For a typical full-time freelancer, the two together settle in the mid-20s to low-30s as a share of profit. Hence the rule of thumb.

Roughly how it scales, for a single filer with only self-employment income and the standard deduction, federal only: around $30,000 of profit the combined bite is near 20%. Around $60,000 it is mid-20s. By $100,000 it approaches 30%, and it keeps climbing from there. Rough numbers on purpose; the point is the shape, not the decimals.

When the rule of thumb is wrong

• You live in a state with income tax. California, New York, and most other states want their share too; add several points.
• You also have a W-2 job. Your wages fill the lower brackets, so side-gig profit is taxed at your top rate; a higher set-aside applies to it.
• High profit. Above roughly $150,000, brackets rise and extra Medicare taxes appear; 30% starts being optimistic.
• Big deductions. Retirement contributions, health insurance premiums, and the QBI deduction can pull your real rate well under the rule.

Make the habit automatic

The percentage matters less than the mechanism. Open a separate savings account, and every time a client pays you, move your percentage over before the money feels spendable. When a quarterly deadline arrives, the payment is sitting there and the deadline is an errand, not a crisis.

Then replace the guess. A set-aside percentage is for smoothing your cash flow; the IRS deadline wants a specific dollar amount, and the safe harbor rule or a real calculation gives you exactly that. You can sanity-check the self-employment tax part right now with the free self-employment tax calculator.

Based on IRS Publication 505 and current federal rates. Educational information, not tax advice. For guidance on your specific situation, consult a qualified tax professional.