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

What does this table assume?

The table assumes a single filer taking the standard deduction, with no other income, no dependents, no credits, no W-2 income, and no state tax. The table uses a QBI deduction of 20% of qualified business income, capped at 20% of taxable income, and doesn't model the phase-out. The table also doesn't account for self-employed health insurance or retirement contributions. Both would push your tax lower than what's shown here.

Why does the reserve rate climb with income?

The reserve rate climbs with income because two flat pieces shrink as a share of profit: self-employment tax runs 15.3% on 92.35% of net profit, about 14.1% of profit until the wage base is reached. Half of self-employment tax comes back as an above-the-line deduction.¹ The standard deduction, $16,100 single or $32,200 married filing jointly, removes a fixed amount from taxable income. This is why low earners land so far under 25%. The 20% qualified business income deduction, capped at 20% of taxable income, removes another amount.²

Why does the rate flatten near $200,000?

The rate flattens near $200,000 for a simple reason: the Social Security portion of self-employment tax stops at $184,500 of net earnings in 2026, a threshold a sole proprietor reaches at about $199,783 of net profit. Above that only the 2.9% Medicare tax keeps running, plus 0.9% more under the Additional Medicare Tax.³ The total effective rate keeps climbing above that point, but much more slowly. To calculate the self-employment tax portion alone at your income level, use the self-employment tax calculator.

Do you owe state tax on freelance income?

You owe state tax on freelance income in 41 states, on top of the federal amount in the table above.⁴ Nine states don't tax self-employment income: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire's interest and dividends tax was fully repealed in 2025, and Washington taxes long-term capital gains but not wage or self-employment income. If you're in a flat-rate state, adding that rate to the federal percentage in the table gets you close. In California or New York, use the estimator instead of guessing.

Does W-2 withholding cover your freelance taxes?

W-2 withholding can cover all of your freelance taxes, none of them, or leave you further short than you'd expect. Household W-2 income sits underneath your freelance income and can push the freelance income into a higher bracket than a standalone calculation shows. W-2 withholding can also work in your favor. Under Section 6654(g), withholding is treated as paid in four equal parts across the year, so extra withholding can cover the whole liability.⁵ For a freelancer with a W-2 spouse, one Form W-4 Step 4(c) change can replace four quarterly payments. See the safe harbor tax rules guide for how the same approach avoids an underpayment penalty.

Do Solo 401(k) contributions lower your taxes?

Yes, but Solo 401(k) contributions lower only one of the two federal taxes you owe. A deductible retirement contribution lowers income tax and does nothing to self-employment tax, because self-employment tax is calculated on net earnings before the contribution comes out. At $100,000 of net profit, a $20,000 Solo 401(k) or SEP IRA contribution takes the reserve rate from about 22% down toward the high teens, all of it from income tax. That reduction applies only once you make the contribution, so reserve at the unadjusted rate until the money is in the account.

The Solo 401(k) vs SEP IRA guide covers the 2026 limits for each account and how to work out your contribution.

When the percentage method works better

The percentage method works better when you don't have a prior-year return to rely on. In a first-year business, or after a sharp swing in income, last year's tax bill tells you nothing about this year. The percentage method also works better when this year's profit is falling, because the percentage is based on this year's income, not last year's. Run your own profit through the estimator rather than assuming the table's midpoint fits you.

When last year's tax bill method works better

Last year's tax bill works better once your income is stable or rising. Paying 100% or 110% of last year's tax guarantees no penalty no matter how this year turns out. It also removes the guesswork of estimating net profit before the year is over. The tradeoff: if your income drops, this method can have you pay more during the year than you'll owe.