If no one is withholding taxes from your pay, a good rule of thumb is to set aside 25% to 35% of your net earnings for federal taxes. That range covers both federal income tax and self-employment tax for most freelancers, contractors, sole proprietors, and landlords. Where you land inside it depends on how much you earn, your filing status, and whether you also have investment income or live in a state that taxes income. Figuring out how much money to put aside for taxes is really a one-time calculation you then apply to every dollar that comes in.
Who This Applies To
W-2 employees usually don’t need to think about this. Their employer withholds income tax, Social Security, and Medicare each pay period, which keeps them close to even at filing time.
You need your own system if you earn income without withholding: freelance or contract work, a sole proprietorship, rental property, significant interest and dividends, or a pension that isn’t withholding enough. The IRS expects quarterly estimated tax payments from anyone who will owe $1,000 or more in federal tax after subtracting withholding and refundable credits.1Internal Revenue Service. Form 1040-ES – Estimated Tax for Individuals That threshold captures most people with meaningful self-employment or investment income.
If you have a W-2 job and a side business, the withholding from your paycheck still counts. You only need to save and send estimates to cover the gap.
What the Percentage Has to Cover
The reason the number is higher than you might expect is that self-employed workers owe two separate federal taxes on the same earnings.
Federal Income Tax
Income tax runs through seven progressive brackets, from 10% at the bottom to 37% at the top. You don’t pay your top bracket on every dollar; each slice of income is taxed at its own rate. For a single filer in 2026, the 22% bracket starts at $50,401 and the 24% bracket starts at $105,701. Before any of those rates apply, you subtract the standard deduction: $16,100 single, $32,200 married filing jointly, or $24,150 head of household for 2026.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Because of that deduction, your effective income tax rate is always lower than your top bracket.
Self-Employment Tax
Self-employment tax is what pushes the savings percentage up. A W-2 employee splits Social Security and Medicare with their employer. When you work for yourself, you pay both halves: 12.4% for Social Security and 2.9% for Medicare, for a combined 15.3%.3Internal Revenue Service. Topic No. 554, Self-Employment Tax
Two details take some of the sting out. The tax applies to 92.35% of your net earnings, not the full amount. And you can deduct half of what you pay in self-employment tax when calculating your adjusted gross income, whether or not you itemize.3Internal Revenue Service. Topic No. 554, Self-Employment Tax The Social Security portion also caps out once your combined earnings hit $184,500 in 2026; the 2.9% Medicare portion keeps going on every dollar.4Social Security Administration. Contribution and Benefit Base
Extra Taxes Once You Earn More
Higher earners have two more items to budget for, and neither one shows up through withholding on self-employment income.
An extra 0.9% Additional Medicare Tax applies to self-employment income and wages above $200,000 for single filers or $250,000 for married couples filing jointly.5Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
A separate 3.8% Net Investment Income Tax applies to interest, dividends, capital gains, rental income, and royalties if your modified adjusted gross income clears those same thresholds. It’s calculated on the lesser of your net investment income or the amount you’re over the threshold.6Internal Revenue Service. Topic No. 559, Net Investment Income Tax
A Worked Example
Generic percentages are useful, but running your own numbers is better. Here’s a single freelancer with $80,000 in net self-employment income in 2026.
Self-employment tax first: $80,000 × 92.35% × 15.3% works out to roughly $11,304. Half of that, about $5,650, is deductible against income tax.
For income tax, subtract the $16,100 standard deduction and the $5,650 SE tax deduction from $80,000. Taxable income lands around $58,250. Run that through the brackets: 10% on the first $12,400 ($1,240), 12% on the next $38,000 ($4,560), and 22% on the remaining $7,850 or so ($1,727). That’s about $7,527 in federal income tax.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
Add the two together: roughly $18,831 in federal tax on $80,000, or about 23.5%. Add state income tax and the number rises. Apply the qualified business income deduction (more on that below) and it falls. The point is that even a rough calculation beats guessing, and for most people the answer sits inside that 25% to 35% band.
What Pushes Your Number Down
The savings target applies to net income, not gross revenue. Legitimate deductions shrink the base before the percentage ever gets applied.
Ordinary and necessary business expenses, reported on Schedule C, reduce both income tax and self-employment tax. That includes advertising, software, supplies, insurance, professional services, and contract labor. A home office used regularly and exclusively for work can be deducted at $5 per square foot up to 300 square feet under the simplified method, or as a proportionate share of actual home expenses under the regular method. Business driving can be deducted at the 2026 standard mileage rate of 72.5 cents per mile, or by tracking actual vehicle expenses. Keep a contemporaneous mileage log either way.
Retirement contributions do double duty: they lower your current tax bill and build long-term savings. A SEP-IRA lets you contribute up to 25% of net self-employment income with minimal paperwork. A Solo 401(k) allows employee deferrals of $24,500 in 2026, plus employer profit-sharing, up to a combined cap of $72,000 under 50. Self-employed workers can also deduct 100% of health insurance premiums for themselves and their dependents, provided they aren’t eligible for coverage through a spouse’s employer.
The Section 199A qualified business income deduction lets eligible self-employed workers and pass-through owners deduct up to 20% of qualified business income.7Internal Revenue Service. Qualified Business Income Deduction It applies to income from sole proprietorships, partnerships, S corporations, and single-member LLCs, and not to W-2 wages, C corporation income, or investment income. The full deduction is available below roughly $200,000 of income for single filers and $400,000 for married joint filers, and phases out above those levels. For someone with $100,000 in qualifying business income below the phase-out, this trims $20,000 off taxable income.
What Pushes Your Number Up
Everything above is federal. If your state has an income tax, add that rate on top of your federal savings percentage. Eight states don’t tax individual income at all; among the rest, top marginal rates run from 2.5% to 13.3%. Someone saving 30% for federal taxes in a state with a 5% rate should be closer to 35%. Most states also require their own quarterly estimated payments on separate forms.
Investment and passive income also raise the target because they usually have no withholding. Interest and non-qualified dividends are taxed at your ordinary rate. Qualified dividends and long-term capital gains get preferential rates of 0%, 15%, or 20% depending on income.8Internal Revenue Service. Topic No. 409, Capital Gains and Losses Short-term gains, on assets held one year or less, are taxed at your ordinary rate. Rental income is taxed at ordinary rates on net profit after deducting property taxes, insurance, repairs, management fees, mortgage interest, and depreciation; a reasonable approach is to set aside a share of gross rents each month at your marginal rate and reconcile at year-end.9Internal Revenue Service. Topic No. 414, Rental Income and Expenses
Where to Hold the Money
Knowing the percentage only matters if the money is still there when it’s due. The most reliable system is a separate savings account that you treat as off-limits. Each time revenue arrives, transfer your set-aside percentage into that account before any of it gets spent. If your bank supports percentage-based automatic transfers, use them. The balance earns interest while it waits, and you remove the possibility of spending it twice.
If your income is uneven, calculate the percentage at the start of the year based on projected income and revisit it quarterly. The simplest hedge against a surprise is to save slightly more than you think you need and treat any surplus as a refund or a head start on next year’s first payment. Track business expenses as they happen rather than reconstructing them in April; a missed deductible dollar is a taxed dollar.
Quarterly Deadlines and the Safe Harbor
Estimated taxes are paid in four installments across the year. The 2026 due dates are:
- First quarter: April 15, 2026
- Second quarter: June 15, 2026
- Third quarter: September 15, 2026
- Fourth quarter: January 15, 2027
The spacing is uneven on purpose, so the Q2 payment arrives only two months after Q1. You submit payments with Form 1040-ES, through IRS Direct Pay, EFTPS, your IRS Online Account, or by debit or credit card with a processing fee.10Internal Revenue Service. Payments If your income is lumpy, the annualized income installment method on Form 2210 lets you pay more in strong quarters and less in slow ones.
Missing a deadline or underpaying triggers an underpayment penalty based on the shortfall, how long it was outstanding, and the quarterly federal interest rate.11Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty For the first half of 2026, that rate runs 6% to 7% annually.12Internal Revenue Service. Quarterly Interest Rates
You can avoid the penalty entirely by meeting one of two safe harbors. Your payments and withholding for the year must equal at least 90% of your current year’s total tax, or 100% of your prior year’s total tax. If your prior-year adjusted gross income exceeded $150,000 ($75,000 if married filing separately), the prior-year figure jumps to 110%.1Internal Revenue Service. Form 1040-ES – Estimated Tax for Individuals For anyone whose income is growing, the prior-year number is often the easier target: pay 100% (or 110%) of last year’s tax across the four installments and the penalty is off the table, even if this year’s bill ends up much larger. You still owe the difference at filing time, just without the add-on.