How Much of Each Payment to Set Aside for Taxes (With Math)

"Save 30% for taxes" is the most common advice freelancers get, and it's a guess. For some people 30% leaves a pile of extra cash in the account in April. For others it falls short by thousands, and the bill arrives with a penalty attached.

You can replace the guess with your own number in about ten minutes. It takes three tax rates, one multiplication, and a habit of moving the money the day a client pays you.

1.Why a Round Number Misses

Freelancers owe two federal taxes on the same profit. The first is self-employment tax, which is the 15.3% Social Security and Medicare tax an employer would normally split with you. The second is regular income tax, which depends on your tax bracket (the rate that applies to your last dollars of income).

Self-employment tax applies to 92.35% of your net profit, so the real rate is about 14.13% of each dollar. Half of that tax comes off your income before income tax is figured, which shrinks the income tax slightly.

Here is the calculation for one $1,000 client payment, assuming you sit in the 22% federal bracket. These are assumptions you can swap for your own.

Two freelancers can both earn $90,000 and need different percentages. One lives in Texas, which has no state income tax. The other lives in a state that takes 5%. One has a spouse with a $120,000 salary that pushes shared income into a higher bracket, and the other files alone. Each of them would be wrong to copy the other's number.

A flat 30% would leave you about $46 short on every $1,000 you collect. On $90,000 of profit that adds up to roughly $4,100 you'd owe in April without having saved it.

The table skips the standard deduction (the amount of income the IRS taxes at 0%) and the QBI deduction, so it overstates the tax a little for most people. That's the safe direction to be wrong.

2.Build Your Own Percentage in Three Pieces

Add up three rates, and you have your set-aside percentage.

1. Self-employment tax: use 14.13% of each payment. The Schedule SE walkthrough shows where that number comes from.
2. Federal income tax: use your bracket from last year's return, applied to about 93% of the payment (after the half-SE deduction).
3. State income tax: use your state's rate if it has an income tax. Some states have none, so this piece can be zero.

Look up last year's bracket on your Form 1040, or in the IRS tax tables on irs.gov. If your income changed a lot this year, use the bracket you expect to land in.

Say you're in the 24% bracket in a state with a 4% income tax. Your percentage is 14.13% plus about 22% federal (24% of the 93% left after the half-SE deduction) plus about 3.7% state. That's roughly 40%. Write the final number on a sticky note, and use it for the next twelve months.

Apply the percentage to what the client actually paid you. If a payment processor takes a fee before the money reaches your account, use the amount you received, because that fee is an expense you'll deduct anyway.

3.Two Ways to Move the Money

Once you have a percentage, you need a rule for when the money moves. Two rules work, and each fits a different kind of income.

Option A: Move a flat share of every payment

Every time a client pays, transfer your percentage to a separate savings account that day. On a $4,000 payment at 34.6%, you move $1,384 and treat the remaining $2,616 as yours.

This works best when your payments arrive in irregular lumps. You never have to wonder what's safe to spend, because the account holds the tax money from the moment the cash lands.

Option B: True up once a quarter

Leave everything in your main account, and four times a year add up your profit (income minus expenses) for the period. Multiply it by your percentage and transfer that amount right before each estimated payment is due.

This works best with steady retainers, where the monthly numbers barely change. It also lets expenses lower the amount, because you apply the percentage to profit rather than to every payment.

4.Where the Money Waits and When It Leaves

Benjamin Franklin wrote to a French friend in 1789 that "in this world nothing can be said to be certain, except death and taxes." Your tax bill is certain, and it arrives on four fixed dates. For 2026 income those dates are April 15, June 15, September 15, and January 15 of the next year.

The January 15 payment is easy to forget because it falls right after the holidays. It's a real due date with the same penalty rules. You can skip it only if you file your full return and pay the balance by January 31.

Put the set-aside in a high-yield savings account at a different bank than your daily account. Seeing a $9,000 balance next to your everyday spending money makes the tax cash look spendable. A separate login makes it harder to touch.

When a due date arrives, pay the IRS from this account through IRS Direct Pay or your online IRS account. The quarterly taxes guide covers how to figure the size of each payment and avoid the underpayment penalty.

Your set-aside percentage should come from your own three tax rates and move out of your account the day each client pays.

5.When to Change Your Percentage

Your percentage was built from last year's bracket, so it needs a check whenever the income picture changes. Three events call for one.

• A big new client or a raise: if your profit jumps enough to land in a higher bracket, raise the federal piece.
• A slow quarter: if profit drops, your bracket may drop with it, and you can lower the rate.
• A large purchase: a $3,000 laptop lowers profit by $3,000, and Option B picks that up automatically.

Compare your savings balance to what you owe each quarter. Extra money in the account after the January payment is yours to keep. A shortfall tells you to raise the percentage by a few points for the next year.

6.Paying Less Than You Saved, Without a Penalty

The IRS charges an underpayment penalty when your estimated payments run too low. A safe harbor (a rule that protects you from the penalty) lets you pay a smaller amount on schedule. You can pay 100% of last year's total tax in four equal parts, or 110% if last year's adjusted gross income was over $150,000. Paying 90% of this year's tax also qualifies.

Say last year's total tax was $20,000. Four payments of $5,000 meet the 100% rule. If this year's set-aside is heading toward $31,118, the extra $11,118 stays in your savings account after the January payment, and you send it with your return in April.

You still owe the whole bill, so the full percentage keeps going into savings. The safe harbor only controls how much has to reach the IRS before April 15.

7.One Quarter, Start to Finish

Here is how Option A plays out for a designer who gets three payments between April and June. The 34.6% rate is the one from the table, and the amounts are made up for illustration.

• April 9, $3,500 logo project: transfer $1,211 to savings and keep $2,289.
• May 14, $2,000 website retainer: transfer $692 to savings and keep $1,308.
• June 2, $5,200 brand package: transfer $1,799 to savings and keep $3,401.

By June 15 the savings account holds $3,702 from this quarter. That covers a $3,000 estimated payment with $702 left over for the next one. Nobody had to remember anything on June 14, because the money was already sitting there.

Keep one line in your records for each transfer: the date, the client, and the amount moved. If a payment is ever questioned, those lines show where each dollar of tax money came from. A spreadsheet column works, and so does a note in your invoicing tool.

Round each transfer up to the next dollar. Over a year, the extra pennies add up to a small cushion for the days when a payment lands a few dollars short of your estimate.

On $90,000 of profit, the percentage from the table puts about $31,118 into the tax account over the year. That's $12,717 of self-employment tax and $18,401 of federal income tax, both figured without the standard deduction, so the real bill will often come in lower.

A bigger balance than you needed is a good surprise in April. A bigger bill than you saved for is the one that causes trouble.

If you want to see what your own number comes out to, the free tax checkup at simplance.org/tax-checkup walks through it using your income.