TallyO

Every freelancer asks this question, usually right after their first big payment hits the bank. You look at that deposit and think, “How much of this is actually mine?”

The standard advice is to set aside 25–30% of your gross income for taxes. That’s a solid starting point, but it’s a wide range. Whether you need 25% or 30%—or more—depends on your total income, your filing status, your state, and your deductions. Let’s break it down so you know your actual number.

Why 25–30%? The Two Taxes Freelancers Pay

As a freelancer, you owe two types of federal tax on your self-employment income:

1. Self-Employment Tax: ~14.1%

This covers Social Security (12.4%) and Medicare (2.9%). Technically the rate is 15.3%, but you only pay it on 92.35% of your net earnings, which brings the effective rate to about 14.1%. This tax applies from dollar one—there’s no standard deduction or personal exemption that reduces it.

2. Federal Income Tax: 10–37%

This is the same progressive tax everyone pays, based on your taxable income after deductions. Most freelancers earning $30,000–$100,000 fall in the 12% or 22% brackets. After the standard deduction and the deduction for half of SE tax, your effective income tax rate is usually 8–16%.

Add them together: 14.1% (SE tax) + 8–16% (effective income tax) = 22–30%. That’s where the 25–30% rule comes from.

Tax Savings Rate by Income Level

The percentage you need to save changes as your income grows because of progressive tax brackets. Here’s what it looks like at different income levels for a single filer with no deductions beyond the standard deduction:

Net SE Income	SE Tax	Income Tax	Total Tax	Effective Rate
$25,000	$3,533	$1,020	$4,553	~18%
$50,000	$7,065	$3,439	$10,504	~21%
$75,000	$10,598	$6,739	$17,337	~23%
$100,000	$14,130	$11,114	$25,244	~25%
$150,000	$21,195	$22,064	$43,259	~29%

Notice the pattern: at lower incomes, the self-employment tax is the biggest chunk. As income grows, income tax takes over. At $150,000, you’re approaching that 30% threshold even before state taxes.

A Detailed Example at $60,000

Let’s walk through the full calculation for a freelancer earning $60,000 net (after business expenses) to see exactly where every dollar goes.

At $60,000 net income, you’d owe about $13,068 in federal taxes—roughly 21.8% of your income. If you saved 25% ($15,000), you’d have a comfortable cushion. If you only saved 20% ($12,000), you’d come up short.

How Deductions Lower Your Effective Rate

The numbers above assume no business deductions beyond the standard deduction. But most freelancers have legitimate business expenses that reduce their taxable income. Here are the deductions that make the biggest impact:

• Mileage: At $0.70/mile, driving 10,000 business miles saves you $7,000 in taxable income—worth roughly $1,900 in taxes
• Home office: A 150 sq ft office in a 1,500 sq ft home lets you deduct 10% of rent, utilities, and insurance—typically $1,500–$3,000/year
• Health insurance premiums: If you buy your own coverage, the full premium is deductible. For a single person, that’s often $4,000–$7,000/year
• Retirement contributions: A SEP IRA lets you contribute up to 25% of net earnings (max $69,000 in 2026). Even $5,000 saves you $1,000+ in taxes
• QBI deduction: Up to 20% of qualified business income—this alone can save thousands

A freelancer earning $60,000 gross with $10,000 in business expenses has a net income of $50,000. Their effective federal tax rate drops from 21.8% to about 19.5%—saving over $1,300. Add QBI and retirement contributions, and it can drop below 17%.

Your Personal Tax Savings Rate Cheat Sheet

Based on the math above, here’s a practical guide for how much to set aside:

Practical Tips for Setting Money Aside

1. Open a separate tax savings account. Every time you get paid, immediately transfer your tax percentage. Out of sight, out of mind.
2. Transfer on payment day, not later. If you wait, you’ll spend it. Automate this if your bank allows percentage-based transfers.
3. Start at 30% and adjust down. It’s better to have a small surplus in April than to scramble for cash. You can always move the extra back.
4. Track deductions all year. Every receipt you miss is money you overpay in taxes. Use an app or a simple spreadsheet—just be consistent.
5. Pay quarterly. Don’t let taxes pile up until April. Paying estimated taxes each quarter keeps you on track and avoids IRS penalties.
6. Revisit your rate mid-year. If your income is growing faster than expected, bump your savings percentage up. If it’s a slow year, you can ease off.

The freelancers who get in trouble at tax time aren’t the ones who saved too little—they’re the ones who saved nothing. Even setting aside 20% puts you in a dramatically better position than winging it. Start with a percentage, stick with it, and fine-tune as you go.