If you’re self-employed, plan to set aside roughly 20–30% of your net profit for federal taxes. The lower end fits people earning under about $100,000; the higher end fits those above it. That covers two obligations rolled into one payment: the 15.3% self-employment tax for Social Security and Medicare, plus federal income tax at your bracket rate. You pay both through quarterly estimated installments, not paycheck withholding, so the responsibility for saving the money sits with you.
How Much to Set Aside by Income Level
A single filer with $80,000 in net profit, taking the standard deduction and the full qualified business income deduction, ends up owing about $16,648 in federal tax. That’s roughly 21% of net profit. Here’s how that number is built:
- Self-employment tax: $80,000 × 92.35% = $73,880 taxable base. At 15.3%, that’s about $11,304.
- Deductible half of SE tax: $5,652 comes off adjusted gross income.
- Taxable income: $80,000 minus $5,652 minus the $16,100 standard deduction, then minus a QBI deduction of about $11,650, leaves roughly $46,600.
- Federal income tax: 10% on the first $12,400 plus 12% on the next $34,200, about $5,344.
At $150,000 in net profit, higher brackets push the effective federal rate closer to 25%. Above $200,000, the Additional Medicare Tax and QBI phase-outs for service businesses push it toward 28–30%.
A conservative rule of thumb:
- Under $100,000 in net profit: set aside 20–25%.
- $100,000 to $200,000: set aside 25–30%.
- Above $200,000: set aside 28–30% or more, especially if you’re in a service field.
Adjust downward if you have substantial deductions like retirement contributions or a large home office. Adjust upward if you live in a state that taxes income.
What Makes Up the Bill
The 15.3% self-employment tax covers both the employer and employee halves of Social Security (12.4%) and Medicare (2.9%). In a W-2 job your employer covers half; on your own, you owe all of it.1Office of the Law Revision Counsel. 26 USC 1401 – Rate of Tax The rate applies to 92.35% of your net earnings, not the full amount, which mirrors the deduction W-2 employees get when their employer pays half.2Internal Revenue Service. Topic No. 554, Self-Employment Tax The 12.4% Social Security portion stops at $184,500 of earnings in 2026.3Social Security Administration. Maximum Taxable Earnings The 2.9% Medicare portion has no cap.
High earners also pay an Additional Medicare Tax of 0.9% on self-employment income above $200,000 for single filers or $250,000 for married couples filing jointly.4Internal Revenue Service. Questions and Answers for the Additional Medicare Tax The self-employment tax kicks in once net earnings reach $400 for the year.5Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
Federal income tax comes on top of that, applied to your taxable income after deductions. The 2026 brackets for single filers run from 10% on income up to $12,400 to 37% on income over $640,600.6Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill The standard deduction for 2026 is $16,100 for single filers, $32,200 for married filing jointly, and $24,150 for heads of household.
Deductions That Lower the Set-Aside
Several deductions specific to self-employed workers make the effective tax rate lower than the bracket table suggests. Building them into your estimate keeps you from overpaying quarterly.
Half of your self-employment tax comes off your adjusted gross income automatically when you file Schedule SE.5Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) This is the deduction people most often forget when guessing at their tax bill.
The qualified business income deduction lets most self-employed workers deduct up to 20% of their qualified business income. It’s now permanent under Section 199A. If you work in healthcare, law, accounting, consulting, financial advising, or athletics, the deduction phases out once taxable income exceeds roughly $203,000 for single filers or $406,000 for married couples filing jointly.7eCFR. 26 CFR 1.199A-5 – Specified Service Trades or Businesses Architecture and engineering are exempt from that restriction.
Retirement contributions offer the largest tax savings for self-employed workers who can afford them. A SEP IRA allows contributions up to 25% of net self-employment earnings, capped at $72,000 for 2026.8Internal Revenue Service. SEP Contribution Limits A Solo 401(k) allows an employee deferral of $24,500 plus employer contributions of up to 25% of net earnings.9Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026 Workers 50 and over add $8,000 in catch-up contributions; those 60 through 63 get $11,250.
If you use part of your home exclusively and regularly for business, the simplified home office deduction is $5 per square foot up to 300 square feet, or $1,500 maximum.10Internal Revenue Service. Simplified Option for Home Office Deduction Ordinary business expenses like supplies, software, advertising, and mileage all reduce your net profit before any tax is calculated. Track them throughout the year.
Paying It: Quarterly Estimated Payments
The IRS expects payment as you earn, not in a lump sum at filing. Form 1040-ES has a worksheet for projecting your annual liability and dividing it into four installments.11Internal Revenue Service. Form 1040-ES – Estimated Tax for Individuals The 2026 due dates:12Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
- April 15, for income earned January through March
- June 15, for income earned April through May
- September 15, for income earned June through August
- January 15 of the following year, for income earned September through December
You can skip the January 15 payment if you file your return and pay the balance by February 1.
IRS Direct Pay transfers funds from a bank account at no cost, with no registration.13Internal Revenue Service. Direct Pay With Bank Account The Electronic Federal Tax Payment System requires enrollment but lets you schedule payments up to 365 days in advance.14Internal Revenue Service. EFTPS: The Electronic Federal Tax Payment System You can also mail a check with the vouchers in the Form 1040-ES package. Keep confirmation numbers either way.
Avoiding the Underpayment Penalty
The IRS charges a penalty when quarterly payments fall short, but three safe harbors protect you. Meeting any one avoids the penalty even if you owe money at filing:12Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
- You owe less than $1,000 after subtracting withholding and credits.
- Your payments cover at least 90% of the current year’s tax.
- Your payments equal at least 100% of last year’s total tax, or 110% if your adjusted gross income last year exceeded $150,000 ($75,000 if married filing separately).
The prior-year safe harbor is the practical one for most self-employed workers. If your income swings unpredictably, base your quarterly payments on last year’s total tax divided by four. You may owe a balance in April, but no penalty on top. The penalty itself is calculated using quarterly IRS interest rates on the underpaid amount, so it behaves more like interest than a flat fine, but it grows with the size and duration of the shortfall.
Don’t Forget State Tax
The 20–30% figure covers federal tax only. Most states levy their own income tax on self-employment earnings, with top marginal rates ranging from under 3% to over 13%. Eight states have no individual income tax. In a high-tax state, add 5 to 10 percentage points to your set-aside target.
States that tax income typically require their own quarterly estimated payments once expected liability crosses a threshold, often somewhere between $100 and $1,000. Due dates often match the federal schedule but not always. Check your state revenue department for the specifics.