If you’re self-employed, plan to set aside 25% to 35% of your net profit for federal taxes. The lower end fits people earning under about $50,000; the middle covers most workers between $50,000 and $150,000; the top end applies once income climbs higher or state taxes enter the picture. That range accounts for both the 15.3% self-employment tax and a federal income tax bracket that can run from 10% to 37% in 2026. Save too little and you’ll owe underpayment penalties; save too much and you’ve tied up cash the business could have used.
Save on Net Profit, Not Gross Revenue
The percentage applies to net profit, not to every dollar that lands in your account. Net profit is what remains after you subtract legitimate business expenses from gross revenue on Schedule C. Supplies, software, professional insurance, advertising, and contractor payments all reduce the number your tax is calculated on.
Two deductions are worth flagging because they’re large. If you drive for business, the 2026 standard mileage rate is 72.5 cents per mile.1Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents Per Mile Fifteen thousand business miles works out to $10,875 off your taxable income. If you work from home, the simplified home office deduction is $5 per square foot up to 300 square feet, capping at $1,500.2Internal Revenue Service. Simplified Option for Home Office Deduction
Every expense must be common in your line of work and helpful to your business. Careful bookkeeping is what makes the difference between a defensible deduction and one that falls apart under review.
The 15.3% Self-Employment Tax Floor
Before income tax enters the picture, you owe self-employment tax. This covers Social Security and Medicare, the same taxes a traditional employer and employee split. Working for yourself, you pay both halves: 12.4% for Social Security and 2.9% for Medicare, totaling 15.3%.3Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
There is a built-in discount. Self-employment tax applies to 92.35% of your net profit, not the full amount.4Internal Revenue Service. Topic No. 554, Self-Employment Tax On $100,000 of net profit, the tax base is $92,350 and the actual bill is about $14,130. That works out to roughly 14.1% of net profit for most people.
The 12.4% Social Security portion only applies to earnings up to the 2026 wage base of $184,500.5Social Security Administration. Contribution and Benefit Base Above that, you owe only the 2.9% Medicare portion. High earners face an additional 0.9% Medicare surtax on self-employment income above $200,000 for single filers or $250,000 for married filing jointly.6Internal Revenue Service. Topic No. 560, Additional Medicare Tax
Federal Income Tax on Top
The second layer is federal income tax, calculated on a progressive bracket system. Only the income within each range is taxed at that range’s rate. Crossing into the 22% bracket does not mean everything you earned gets taxed at 22%.
For 2026, the single-filer brackets are:7Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- 10% on taxable income up to $12,400
- 12% from $12,401 to $50,400
- 22% from $50,401 to $105,700
- 24% from $105,701 to $256,225
- 32% from $256,226 to $640,600
- 35% and 37% above that
Married-filing-jointly thresholds roughly double. The 12% bracket runs to $100,800, the 22% bracket to $211,400, and the 24% bracket to $512,450.
Taxable income is not the same as net profit. You subtract the standard deduction first, which for 2026 is $16,100 for single filers and $32,200 for married filing jointly.7Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Above-the-line deductions come off before that too.
Pick Your Percentage by Earnings
Stack self-employment tax and income tax together and you get a total federal rate. For most self-employed people earning between $50,000 and $200,000, self-employment tax runs about 14.1% of net profit, and the marginal income tax rate on top gives you the rest.
Consider a single filer with $80,000 in net profit. Self-employment tax runs about $11,300. After deducting half of that and the standard deduction, taxable income lands around $58,000, putting the top dollars into the 22% bracket. Income tax comes to roughly $7,500. Total federal tax is about $18,800, or roughly 23.5% of net profit. Setting aside 25% builds in a small buffer.
At $150,000 in net profit, the math shifts. Self-employment tax climbs to about $21,200 and income tax reaches about $22,000 as more earnings fall into the 24% bracket. The combined rate approaches 29%, so a 30% to 35% reserve fits better.
Three tiers to work from:
- Net profit under $50,000: 25% is usually enough. You’re largely in the 10% and 12% brackets, and self-employment tax does most of the work.
- Net profit between $50,000 and $150,000: 30% is safer as the 22% and 24% brackets take a larger bite.
- Net profit above $150,000: 35% or more, especially once state taxes are added.
These benchmarks assume no retirement contributions and no other deductions beyond the standard. If you use the deductions below, your real bill drops, and any surplus in the reserve account simply comes back to you at filing.
Deductions That Lower What You Actually Owe
Several deductions come off adjusted gross income before the standard deduction even applies, which means they shrink both your income tax and, sometimes, the bracket your top dollars sit in.
Half of Self-Employment Tax
You can deduct the employer-equivalent portion of your self-employment tax when calculating adjusted gross income.4Internal Revenue Service. Topic No. 554, Self-Employment Tax On $80,000 of net profit, that’s about $5,650 off the income you’ll run through the brackets. It does not reduce the self-employment tax itself.
Self-Employed Health Insurance
If you pay your own premiums and aren’t eligible for coverage through a spouse’s employer plan, you can deduct 100% of premiums for yourself, your spouse, and your dependents on Schedule 1.8Internal Revenue Service. Instructions for Form 7206 A family paying $1,200 a month gets $14,400 off AGI. No itemizing required.
Qualified Business Income Deduction
The Section 199A deduction lets eligible filers deduct up to 20% of qualified business income. On $100,000 of net profit, that’s up to $20,000 off taxable income. It’s available in full below certain thresholds; for 2026, phase-ins begin around $203,000 for single filers and $406,000 for married filing jointly. Certain service-based businesses (law, medicine, consulting, financial services) lose the deduction entirely above the upper phase-out range. Engineers and architects are exempt from the service-business restriction.
Retirement Plan Contributions
A SEP IRA allows contributions up to 25% of net self-employment earnings, capped at $72,000 for 2026.9Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs You have until your filing deadline, including extensions, to fund it.
A solo 401(k) is more flexible. You can defer up to $24,500 as an employee in 2026, plus make an employer profit-sharing contribution of up to 25% of net earnings, with a combined cap of $72,000. Workers 50 and older get an extra $8,000; ages 60 to 63 get an enhanced $11,250 catch-up. Someone earning $60,000 can shelter far more through a solo 401(k) than a SEP IRA because of the employee deferral.
Pay It In Quarterly, Not All at Year-End
The IRS expects taxes as income is earned. If you’ll owe $1,000 or more after any withholding and refundable credits, you’re required to make quarterly estimated payments on Form 1040-ES.10Internal Revenue Service. Form 1040-ES – Estimated Tax for Individuals
The four due dates don’t follow neat calendar quarters:11Internal Revenue Service. Frequently Asked Questions – Estimated Tax for Individuals
- April 15, covering January through March
- June 15, covering April and May
- September 15, covering June through August
- January 15 of the following year, covering September through December
Deadlines falling on weekends or holidays shift to the next business day.
The Safe Harbors
Underpaying triggers a penalty currently calculated at a 7% annual interest rate on the shortfall.12Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026 Two safe harbors protect you:13Internal Revenue Service. Topic No. 306, Penalty for Underpayment of Estimated Tax
First, pay at least 90% of your current-year tax. This requires accurate forecasting, which is hard when income varies month to month.
Second, pay 100% of last year’s total tax in four equal installments. This is the easier target for most self-employed people because it doesn’t depend on how the current year unfolds. If your adjusted gross income exceeded $150,000 last year ($75,000 if married filing separately), that threshold rises to 110%.14Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
One trap: the IRS excludes estimated tax penalties from “reasonable cause” relief.15Internal Revenue Service. Penalty Relief for Reasonable Cause You can’t call and ask them to waive it because you had a rough year. The safe harbors are your only reliable protection.
Move the Money Every Time You Get Paid
Knowing the right percentage matters only if the money is there when a quarterly payment comes due. The habit that works is transferring your target percentage into a separate account every time revenue arrives. Every time. Treat the transfer like paying a vendor: the money is spoken for and no longer available for operations or personal spending.
A high-yield savings account with no debit card, no bill-pay, and no easy path to impulse spending fits the purpose. Friction is what keeps the balance intact.
Applying the same percentage to every deposit means good months build a cushion automatically, and slow months don’t drain reserves faster than the tax bill is shrinking. Proportional saving tracks your actual liability far better than a fixed monthly amount.
Add Your State on Top
Everything above is federal. State income tax rates range from around 2.5% to over 13%, and many states run their own quarterly estimated payment systems with similar penalty structures. Some localities add an income tax as well. Whatever your state and local rates come to, add them to the federal percentage before setting your transfer rule. A 30% federal reserve in a 5% state means saving 35% of every payment that lands.