How much should I set aside for taxes?
This is a general guide for planning, not tax advice. Your numbers depend on your situation; confirm with a tax professional.
Every freelancer asks this in their first year, usually right after a big invoice clears and the balance looks better than it is. The honest short answer: treat 25–30% of each payment as not yours. It belongs to the IRS; you’re just holding it.
Why so much?
Because self-employment income is taxed twice over, in a sense:
- Self-employment tax — about 15.3%. As your own employer, you pay both halves of Social Security and Medicare. It applies to roughly 92.35% of your net profit, and it starts from the first dollar of profit, not after a threshold.
- Income tax — on top. Your net profit (after the deductible half of that SE tax) still gets taxed at your ordinary federal rate, and then your state rate if you have one.
Stack those and a freelancer earning a modest profit is often looking at a real effective rate in the mid-to-high twenties. That’s where 25–30% comes from.
How to be more precise than a rule of thumb
The flat percentage is a safe default, but your true rate depends on your profit and bracket. To tighten it:
- Estimate your net profit for the year — income minus real business expenses.
- Apply the SE tax (~14.1% effective once you account for the 92.35% factor) to that profit.
- Add your income-tax rate for the bracket that profit lands in, plus any state rate.
That gives a personal percentage — often somewhere between 20% and 35%. Set aside that, from every payment, and you’ll be close.
The habit that actually works
Precision doesn’t matter if the money isn’t there in April. The freelancers who never sweat a tax bill do one thing: they move the tax share out of reach the day they get paid. A client pays $2,000; $560 goes straight to a tax pot; $1,440 is what they actually have. The pot funds the quarterly payments; the rest is genuinely theirs.
Let the number follow you
This is exactly the problem Keel was built around. Its Freeboard takes your cash, subtracts a tax reserve at your rate and your committed bills, and shows one honest number: what’s actually yours to spend or pay yourself — updated every time you invoice or log an expense, entirely on your iPhone. You stop guessing at 30% and start seeing the real figure. (An estimate to plan with, not tax advice.)
Quick answers
- Is 30% enough to set aside for taxes?
- For many freelancers, yes — 25–30% covers self-employment tax plus federal income tax at low-to-middle profit. But if you have a high-tax state or a strong year that pushes you into a higher bracket, 30% can fall short. When in doubt, set aside a little more; a refund is easier to enjoy than a shortfall is to cover.
- Why is self-employment tax so high?
- As a freelancer you pay both halves of Social Security and Medicare — 15.3% on roughly 92.35% of your net profit — because there is no employer to cover the other half. That is on top of ordinary income tax, which is why a wage-earner's mental math undercounts what you owe.
- Should I set aside tax money from every payment?
- Yes. The most reliable habit is to move your tax percentage to a separate account the moment a client pays, so the money is never in your spendable balance. Trying to find the lump sum at quarter-end is how freelancers get caught short.
Source: IRS — Self-Employment Tax
Run your money on your own phone
Keel — invoice, receipts, and one honest number.
The on-device financial brain for a company of one. Free to start, no account, nothing readable leaves your iPhone.
On-device · No account · Data Not Collected