Short version: 25–30% of profit is the range most people land in, and 30% is the safer end to start with. But that number is doing a lot of hidden work, and if you don’t know what’s inside it you can’t tell when it stops applying to you. Here’s the whole thing, worked through.
What should you set aside?
Enter your profit — what’s left after business expenses, not what a client paid you.
On every $1,000 of profit, hold back $300.
An estimate, not tax advice. It applies one flat percentage to profit — which is exactly how a set-aside rule should work day to day, and exactly what an actual return does not do. Your bracket, filing status, state, deductions and credits all move the real number. Use this to decide what to hold back; use an accountant to decide what to file.
You’re paying two different taxes
This is the part that catches people who’ve only ever had a W-2 job. When you’re self-employed you owe two separate things, and they’re calculated differently:
- Self-employment tax — Social Security and Medicare. Flat rate. Starts at almost the first dollar of profit.
- Income tax — federal, plus state if your state has one. Progressive, so the rate climbs as you earn more.
An employee pays these too. The difference is that their employer quietly covers half the Social Security and Medicare bill and withholds the rest from every paycheck. Nobody does that for you. You’re both the employer and the employee now, so you pay both halves — and you pay them yourself, on a schedule.
Self-employment tax: the 15.3% you always owe
Self-employment tax is 15.3% — 12.4% for Social Security and 2.9% for Medicare. Two details make the real number lower than 15.3% of your profit:
- It’s charged on 92.35% of your net profit, not 100%. That adjustment exists to mirror the deduction an employer gets.
- The Social Security portion stops at a ceiling. For 2026 that’s $184,500 of earnings (up from $176,100 in 2025). Past that, only the 2.9% Medicare part continues — and Medicare has no cap at all.
If your net profit for the year is under $400, you don’t owe self-employment tax.
Income tax: the part that depends on your bracket
This is why nobody can hand you a single correct percentage. Your federal income tax depends on your total taxable income, your filing status, your standard or itemized deduction, and any other income in the household — a spouse’s salary can push your freelance income into a higher bracket even if the freelance income itself is modest.
Then there’s state. Some states take nothing. Others take a meaningful slice. Two people with identical books in different states owe genuinely different amounts.
Self-employment tax alone is roughly 14.1% of profit once the 92.35% adjustment is applied. Add federal income tax at a low-to-middle bracket, after the standard and business-income deductions, and you land around 20–24%. Add a state income tax and you’re in the mid-to-high twenties, which is where 25–30% comes from, with a little room for a better year than you planned. That’s the whole derivation — it isn’t a rule of thumb someone invented, it’s just the two taxes added together.
Worked example: $60,000 of profit
Say you invoiced $68,000 and had $8,000 of legitimate business expenses, leaving $60,000 of net profit. Single filer, no state income tax, taking the standard deduction.
Self-employment tax
That’s about 14.1% of the original $60,000 — the effective rate, before any income tax at all. Income tax then comes off a much smaller number: take away half the self-employment tax ($4,239), the $16,100 standard deduction and the 20% qualified business income deduction ($7,932, because it is capped at 20% of taxable income), and about $31,700 is left to tax at 10% and 12%.
Roughly, all in
That’s roughly 20% of profit for this particular person. Set aside 25% and you’re covered with room to spare. Set aside 30% and you’ll have a refund or a head start on next year. Add a state income tax and 25–30% stops being generous and starts being about right.
Tax is charged on what’s left after expenses. If you set aside 30% of every payment that lands without accounting for your costs, you’ll over-save — which is a nicer problem than the reverse, but it’s still money sitting idle. If your expenses run about 15% of revenue, holding back 25% of each payment gets you close to 30% of profit.
Where $60,000 of profit actually goes
Single filer, standard deduction, no state income tax.
Set it aside per payment, not per quarter
The arithmetic above is annual, but the habit that makes it work is per-payment. Every time money lands, move your percentage into a separate account immediately — same day, before it’s mentally spent.
This matters more when income is irregular. If you make most of your year in three good months, a “save at the end of the quarter” plan means the tax on a big March hasn’t been set aside by the time a dead April arrives and you need that cash to live on. Money taken off the top on the day it arrives never enters the pool you budget from.
Quarterly estimated tax payments
The IRS expects payment through the year, not in one lump at filing. For self-employed people that means quarterly estimated payments, due roughly mid-April, mid-June, mid-September, and mid-January of the following year.
Exact dates move when they’d fall on a weekend or a holiday, so check IRS.gov each year rather than trusting a date you remember. Underpaying can bring a penalty even if you settle up in full at filing time.
When to stop using a percentage
A flat percentage is a good default and a bad permanent answer. Revisit it if:
- Your profit jumps enough to cross into a higher federal bracket
- You cross the Social Security ceiling — past that point your marginal rate actually drops
- You move states, or your state changes its rates
- Your household situation changes: marriage, a spouse’s income, a child
- You elect S-corp treatment, which changes the calculation substantially
The practical move: set aside 30% for one full quarter, then compare it against what you actually owe. You’ll learn your real number faster than any calculator can tell you.
Where BrassWell helps
A running tax estimate, and a tax set-aside worked out as a percentage of your profit, updated every time you log income or an expense.
Try it free for 14 daysQuestions, answered
What percentage should I set aside for taxes as a freelancer?
25–30% of net profit is the usual working range. In the lower federal brackets, federal tax alone usually comes to about 20–24% of profit; the rest covers a state income tax or a better year than expected. It is a starting point, not an answer — your bracket, your state, and your deductions all move it. Set aside 30% for a quarter, compare it to what you actually owe, and adjust.
What is self-employment tax?
Self-employment tax is Social Security and Medicare for people without an employer. It is 15.3% total — 12.4% Social Security plus 2.9% Medicare — charged on 92.35% of your net profit. For 2026 the Social Security portion applies only up to $184,500 of earnings; the Medicare portion has no cap.
Do I set aside a percentage of revenue or profit?
Profit, not revenue. Tax is charged on what is left after business expenses. Setting aside a percentage of every payment that lands is simpler in practice, but the percentage should be derived from your expected profit margin, or you will over-save.
When are quarterly estimated taxes due?
Roughly mid-April, mid-June, mid-September, and mid-January of the following year. Exact dates shift when they fall on a weekend or holiday, so check IRS.gov each year rather than relying on a remembered date.
Sources
- Self-employed individuals tax center — IRS. The $400 net-earnings threshold, and what self-employment tax covers.
- Self-employment tax (Social Security and Medicare taxes) — IRS. The 15.3% rate, its 12.4% and 2.9% halves, and the Social Security wage ceiling.
- Estimated taxes — IRS. Who has to pay quarterly, and the payment methods.
- Publication 505, Tax Withholding and Estimated Tax — IRS. The safe-harbor rules, in full and in the IRS’s own words.
- Form 1040-ES, Estimated Tax for Individuals (PDF) — IRS. The worksheet that decides whether you owe quarterly payments at all.
