How Much Should I Set Aside for Taxes as Self-Employed?

If you work for yourself, a good default is to set aside 25% to 30% of your net income for federal taxes. That covers both the self-employment tax that funds Social Security and Medicare and the regular federal income tax on your profit. Where you land inside that range (or outside it) depends on how much you earn, your filing status, the deductions you can claim, and whether your state taxes income. Treat 25–30% as a starting point and adjust from there.

Why 25 to 30 Percent

Your federal bill has two pieces that stack on top of each other. The self-employment tax is a flat 15.3% (12.4% for Social Security, 2.9% for Medicare), applied to 92.35% of your net profit.¹ Federal income tax is layered on top of that, using progressive brackets that run from 10% to 37% for 2026.²

Raw rates make the bill look worse than it is, because several deductions shrink the income those rates touch. You deduct half of your self-employment tax above the line.³ Ordinary and necessary business expenses on Schedule C reduce both your income tax and your self-employment tax.⁴ Most sole proprietors can also deduct up to 20% of qualified business income under Section 199A, now a permanent deduction under the One, Big, Beautiful Bill Act.⁵ On top of all that, the 2026 standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly.²

Those deductions are the reason a middle-income freelancer with a 22% top bracket does not actually owe anywhere near 15.3% plus 22%. For most people the combined effective rate lands in the mid-20s, which is where the 25–30% rule comes from.

When to Save More, When Less

A few factors push your target up:

Higher income. Once you cross into the 24%, 32%, or 35% brackets, more of each additional dollar goes to income tax, so the overall share climbs toward 30% and beyond.
Self-employment income above $200,000 single or $250,000 joint. An additional 0.9% Medicare surtax applies to the amount over the threshold.⁶
State and local income tax. Rates vary from zero in some states to upward of 10% elsewhere, and a few cities add their own earnings tax. In a high-tax state, 30–35% of net income is a more realistic cushion than the federal-only 25–30%.

And a few that pull it down:

Lower income. Net profit below the standard deduction can leave you owing little or no federal income tax, with self-employment tax still the main cost.
Filing jointly. The lower brackets are twice as wide for joint filers, so a married freelancer with the same income as a single filer owes less income tax.
Heavy deductible expenses. Every documented business expense cuts both taxes, so a business with real overhead keeps a smaller share of gross as taxable profit.

One ceiling worth knowing: the Social Security portion of self-employment tax only applies to the first $184,500 of combined wages and self-employment income in 2026.⁷ Earnings above that keep the 2.9% Medicare piece but drop the 12.4% Social Security piece.

A Worked Example

Numbers help. Take a single filer with $80,000 of net self-employment income and no other income:

Self-employment tax: $80,000 × 92.35% × 15.3% ≈ $11,304.
Deduction for half of SE tax: about $5,652 off adjusted gross income.
QBI deduction: up to 20% of $80,000, or $16,000.
Standard deduction: $16,100.
Taxable income for income tax: roughly $42,248, which produces about $4,800 in federal income tax.
Total federal tax: around $16,100, or about 20% of gross profit.

Add a 5% state income tax and the total climbs to roughly 25%. Earn $150,000 instead of $80,000 and the higher brackets push the combined rate toward 30%. Earn $40,000 and the standard deduction alone can drop you well under 20%. The 25–30% range is a solid default, but running your own numbers once a year using the Form 1040-ES worksheet is how you fine-tune it.⁸

Save From Every Payment, Not at Year End

The federal tax system is pay-as-you-go. The IRS expects taxes throughout the year, not in one April lump.⁹ For self-employed people, that means quarterly estimated payments on Form 1040-ES whenever you expect to owe at least $1,000 for the year.⁸

The practical move is to pull your target percentage off every client payment the moment it hits your account and park it in a separate savings account. That habit does two things at once. It builds the cash you need for each quarterly payment, and it stops you from spending money you were only holding for the IRS. If your income is lumpy (a strong fourth quarter, a quiet first quarter), saving a fixed percentage per payment is far more reliable than catching up in bulk later.

The 2026 quarterly deadlines are:

Q1: April 15, 2026
Q2: June 15, 2026
Q3: September 15, 2026
Q4: January 15, 2027

A deadline that falls on a weekend or legal holiday shifts to the next business day.¹⁰ You can skip the January 15 payment if you file your 2026 return and pay the full balance by February 1, 2027.⁸

The Safe Harbor Backstop

Estimating a year’s income with precision is impossible, and the safe harbor rules give you a defined way to avoid underpayment penalties. You are protected if your estimated payments equal at least 90% of what you end up owing for the current year, or 100% of what your prior year’s return showed, whichever is less. If your prior-year adjusted gross income was over $150,000 ($75,000 if married filing separately), the prior-year threshold rises to 110%.¹¹

The prior-year route is the easier one to plan around. If last year’s total tax was $12,000, paying $3,000 each quarter (or $3,300 at the higher AGI level) keeps you penalty-free no matter how much your income grows this year. You will still owe the difference at filing time, but without a surcharge on top.

Miss both safe harbors and the IRS charges an underpayment penalty that moves with interest rates, set at 7% for the first quarter of 2026.¹² A separate failure-to-pay penalty of 0.5% of the unpaid balance per month applies if tax you owe on your return is not paid by the filing deadline, capped at 25%; it drops to 0.25% per month under an approved payment plan.¹³

Put the pieces together: pick a savings percentage in the 25–30% range (higher if you earn well into six figures or live in a tax-heavy state), pull that share off every payment as it arrives, send quarterly estimates sized to clear the safe harbor, and reconcile the real number at filing time.

1
Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
2
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
3
Internal Revenue Service. Topic No. 554, Self-Employment Tax
4
Internal Revenue Service. About Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship)
5
Internal Revenue Service. Qualified Business Income Deduction
6
Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
7
Social Security Administration. Contribution and Benefit Base
8
Internal Revenue Service. 2026 Form 1040-ES, Estimated Tax for Individuals
9
Internal Revenue Service. Pay As You Go, So You Won’t Owe: A Guide to Withholding, Estimated Taxes and Ways to Avoid the Estimated Tax Penalty
10
Internal Revenue Service. Publication 509 (2026), Tax Calendars
11
Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
12
Internal Revenue Service. Quarterly Interest Rates
13
Internal Revenue Service. Failure to Pay Penalty