One of the most common questions new freelancers ask is: “How much should I set aside for taxes?” The answer isn’t a single number — it depends on how much you earn. But there’s a simple formula that works for most gig workers.
See IRS estimated tax payments.
Read quarterly taxes guide.
Related: Learn how to save for taxes.
This guide breaks down exactly what percentage you need to save based on your income level, with real-world examples and a system that makes it painless.
The 30% Rule (And When to Adjust It)
The standard advice is to set aside 30% of your net income for taxes. This covers federal income tax, self-employment tax (15.3%), and state income tax (if applicable). But the right percentage varies by income level.
Here’s the breakdown:
| Net Self-Employment Income | Estimated Tax Rate | Set Aside | Typical Scenario |
|---|---|---|---|
| Under $20,000 | 10–15% federal + 15.3% SE + 0–5% state | 25% | Part-time gig, student, or low income |
| $20,000 – $50,000 | 12% federal + 15.3% SE + 0–5% state | 30% | Full-time freelancer, moderate income |
| $50,000 – $100,000 | 22% federal + 15.3% SE + 0–5% state | 33% | Established freelancer, mid-career |
| $100,000+ | 24%+ federal + 15.3% SE + 0–5% state | 37% | High-earning consultant, agency owner |
If you live in a state with no income tax (Texas, Florida, Nevada, etc.), you can subtract 3–5% from these numbers. If you live in a high-tax state (California, New York, Oregon), you may need to add 3–5%.
Real-World Examples
Example 1: Maria — Part-Time Freelancer ($18,000/year)
Maria does freelance graphic design on weekends. She earned $18,000 last year with $3,000 in expenses. Her net income is $15,000. She lives in Texas (no state income tax).
She should set aside 25% of each payment: $3,750 for the year. Her actual tax bill: about $2,400 in SE tax and $900 in federal income tax = $3,300 total. The extra $450 is a nice buffer.
Example 2: James — Full-Time Developer ($72,000/year)
James is a full-stack developer earning $72,000 with $12,000 in expenses (software, home office, equipment). Net income: $60,000. He lives in California.
Target savings rate: 33% + 3% (state) = 36%. He should set aside $21,600 for the year. His actual breakdown: ~$8,500 SE tax, ~$8,300 federal income tax, ~$3,000 state income tax = $19,800. The buffer covers any surprises.
Example 3: Priya — High-Earning Consultant ($180,000/year)
Priya is a management consultant earning $180,000 with $30,000 in expenses. Net income: $150,000. She lives in New York.
Target savings rate: 37% + 4% (state/local) = 41%. She should set aside $61,500. Her actual bill: ~$17,500 SE tax, ~$31,700 federal income tax, ~$9,500 state/local tax = $58,700.
The Calculation Formula
Here’s the simple formula to calculate your tax savings target:
Tax Savings = Net Income × Tax Rate %
Where:
• Net Income = Gross Income ? Business Expenses
• Tax Rate % = Federal Marginal Rate + 15.3% (SE Tax) + State Rate
For a quick estimate, use the table above based on your income range.
The Set-Aside System
Here’s a practical system that works:
- Open a separate savings account for taxes. Don’t mix tax money with spending money.
- Transfer immediately: When a payment comes in, move your target percentage to the tax account before you spend a cent.
- Don’t touch it: This money is not yours. Pretend it doesn’t exist.
- Pay quarterly: Use the money in this account to make your quarterly estimated tax payments.
Underpayment Penalties: What You Need to Know
The IRS charges an underpayment penalty if you don’t pay enough throughout the year. To avoid it, you need to pay at least:
- 90% of your current year’s tax liability, OR
- 100% of your previous year’s tax liability (110% if your AGI was over $150,000)
The penalty is currently around 8% of the underpaid amount — so it’s worth setting aside enough to avoid it.
Monthly Savings Target Table
To make it easier, here’s what you should save each month based on your monthly net income:
| Monthly Net Income | Annual Net Income | Set-Aside Rate | Monthly Savings |
|---|---|---|---|
| $1,000 | $12,000 | 25% | $250 |
| $2,000 | $24,000 | 30% | $600 |
| $3,000 | $36,000 | 30% | $900 |
| $5,000 | $60,000 | 33% | $1,650 |
| $8,000 | $96,000 | 33% | $2,640 |
| $12,000 | $144,000 | 37% | $4,440 |
Quarterly Payment Schedule
Make your estimated tax payments using these due dates:
| Quarter | Due Date | Covers Earnings From |
|---|---|---|
| Q1 | April 15 | January 1 – March 31 |
| Q2 | June 15 | April 1 – May 31 |
| Q3 | September 15 | June 1 – August 31 |
| Q4 | January 15 (next year) | September 1 – December 31 |
Frequently Asked Questions
Q: What if I set aside too much?
A: You’ll get the excess back as a refund when you file your tax return. It’s much better to over-save than under-save.
Q: What if I set aside too little?
A: You’ll owe the difference when you file, plus potentially an underpayment penalty. Adjust your savings rate upward as soon as you realize it.
Q: Do I still pay quarterly if I have a W-2 job that withholds taxes?
A: If your W-2 withholding covers enough of your total tax liability, you may not need to. But if you have significant gig income on top, you probably do.
Q: Should I include my tax savings in my budget?
A: No. Tax savings should be treated as an expense line in your budget, not as savings you can spend. It’s money that belongs to the government.
The key takeaway: set aside 25–37% of every payment, put it in a separate account immediately, and never touch it until tax time. Your future self will thank you.
Setting Up Your Tax Savings System
- Open a separate high-yield savings account exclusively for tax savings. Ally, Wealthfront, and SoFi all offer savings accounts with 4%+ APY and no fees. Having a separate account prevents accidental spending and lets your tax money earn interest while waiting for quarterly deadlines.
- Automate the transfer. Set up your bank to automatically transfer 25-30% of every incoming payment to your tax savings account. Many online banks allow rule-based transfers. If your bank does not, transfer manually every Friday as part of your weekly finance review.
- Pay your quarterly taxes from this account. When April 15, June 15, September 15, and January 15 roll around, log in to IRS Direct Pay or the Electronic Federal Tax Payment System (EFTPS) and pay your estimated taxes directly from your tax savings account. Never pay quarterly taxes from your operating account.
One common question is whether to overpay or underpay your quarterly estimates. The safe answer is to slightly overpay. The IRS refunds overpayments, but underpayments incur penalties (currently 8% per year on the shortfall). Aim to pay 100% of last year’s tax liability (110% if your income exceeds $150,000) to avoid underpayment penalties entirely.
Frequently Asked Questions
What if I set aside too much? You will get it back as a refund after filing your annual return. Many freelancers intentionally over-save and treat the refund as a bonus or retirement contribution.
Do I need to pay quarterly taxes my first year? You are not required to pay quarterly taxes in your first year of freelancing, but you should still set aside the money. When you file your first return, you will need to pay the full year’s tax. Starting quarterly payments in year one prevents a shock at tax time.
What if my income drops mid-year? You can adjust your estimated payments downward. Use Form 2210 to show the IRS that your income was uneven throughout the year and avoid underpayment penalties. This is common for freelancers and the IRS expects it.
Tax resources at IRS and TurboTax.
Disclaimer: This content is for informational purposes only and does not constitute financial, tax, or legal advice. Consult a qualified professional for advice tailored to your specific situation.
