US · Freelance taxes

How much should I set aside for taxes on 1099 income?

A good starting rule is to set aside 25–30% of your net 1099 profit for federal taxes. That covers self-employment tax plus federal income tax for most freelancers — but your exact number depends on your income, deductions, and whether your state has an income tax.

Why you have to set money aside at all

When you're a W-2 employee, your employer withholds taxes from every paycheck. As a 1099 contractor, nobody does that for you. You're responsible for both self-employment tax (Social Security and Medicare) and income tax, and the IRS expects you to pay them throughout the year as quarterly estimated taxes. Set aside too little and you can face a surprise bill plus underpayment penalties.

The two taxes you're saving for

• Self-employment tax — 15.3%. This is a flat-ish 15.3% (12.4% Social Security + 2.9% Medicare) on 92.35% of your net profit. Estimate yours precisely with our self-employment tax calculator.
• Federal income tax. This depends on your tax bracket after deductions. Remember you can deduct half of your SE tax and may qualify for the 20% QBI deduction, which both reduce taxable income.

How to work out your own percentage

Rather than guessing, build your number in three steps:

1. Estimate SE tax: about 14.1% of net profit once the 92.35% adjustment is applied.
2. Estimate income tax: apply your marginal bracket (often 10–22% for many freelancers) to taxable income after deductions.
3. Add a buffer for state tax if you live somewhere with an income tax. States like Texas, Florida and Washington have none; California and New York are on the higher end.

For most freelancers earning a moderate income, the total lands in the 25–30% range. Higher earners, or those in high-tax states, should lean toward 30–35%.

A practical system that works

• Open a separate savings account just for taxes.
• Every time you get paid, immediately move your chosen percentage (say 30%) into it.
• Pay your quarterly estimates from that account on the due dates — generally April 15, June 15, September 15, and January 15.
• Reconcile at year-end: if you over-saved, that's your cushion or a head start on next year.

General guidance only, not tax advice, and does not cover every situation. Confirm with the IRS or a tax professional — see our disclaimer.