The rule freelancers learn too late
When you're an employee, taxes vanish from your paycheck before you see it. When you freelance, the full invoice amount lands in your account — but 25–35% of it isn't yours. Spending it is the classic first-year mistake, and it compounds with penalties and interest.
The math is simple: set aside income tax (your bracket) plus self-employment tax. In the US, self-employment tax is 15.3% on 92.35% of net earnings (Social Security + Medicare); a typical safe set-aside is 25–30% of every payment. Outside the US, substitute your social-contribution rate.
Make it automatic
The result only helps if the money actually moves. On payment day, transfer the set-aside percentage to a separate savings account before you touch anything else. Many freelancers open a second account purely for taxes and treat it as untouchable.
Quarterly estimated taxes
In the US, freelancers generally must pay estimated taxes quarterly (April, June, September, January) if they expect to owe $1,000+. Set-aside discipline makes these four deadlines painless instead of terrifying.
How this calculator works
Enter the payment amount and three percentage inputs — your marginal income-tax rate, your self-employment or social-tax rate, and any extra set-aside for retirement or a buffer — and the calculator returns the dollar amount to move to your tax account, the combined percentage, and what you keep. Each layer is computed on the payment separately and added up.
Formula: Set-aside = payment × income-tax rate + payment × 92.35% × self-employment rate + payment × other rate.
One detail worth knowing: the 92.35% factor mirrors the US rule that only 92.35% of net earnings are subject to self-employment tax — so a 15.3% SE input contributes about 14.13% of the payment, not a full 15.3%. The percentage shown beside the result is the straight sum of your three inputs, while the dollar figure reflects the 92.35% adjustment, so the effective percentage runs slightly below the displayed one. Always move the dollar figure, not the headline percentage.
Worked example: a $4,200 invoice
A designer in the 22% federal bracket receives a $4,200 payment, applies the 15.3% self-employment rate, and adds a 2% retirement buffer:
- Income-tax layer: $4,200 × 22% = $924.00
- Self-employment layer: $4,200 × 92.35% × 15.3% = $593.44
- Buffer layer: $4,200 × 2% = $84.00
- Total set-aside: $924.00 + $593.44 + $84.00 = $1,601.44 — you keep $2,598.56
The displayed combined rate is 39.3%, but the effective cut is about 38.1% because of the 92.35% factor — a small gap per invoice that compounds across a full year, which is why the calculator shows you both numbers.
What the set-aside looks like at three income brackets
Same $4,200 payment and 15.3% self-employment rate, no buffer — only the marginal income-tax rate changes:
| Marginal income-tax rate | Set-aside | You keep |
|---|---|---|
| 12% | $1,097.44 | $3,102.56 |
| 22% | $1,517.44 | $2,682.56 |
| 32% | $1,937.44 | $2,262.56 |
Freelance dollars are taxed at your highest marginal rate, not your average one — a second earner in the household or a strong W-2 half-year can push every invoice into a higher row of this table.
What this leaves out
Four limits to handle deliberately. State taxes vary: the calculator has no separate state field, so fold your state income-tax rate into the income-tax input — in high-tax states that adds several points on its own. S-corporation filers differ: S-corp owners pay self-employment tax only on their reasonable salary, not on distributions, so this calculator overstates the set-aside for S-corps — run distributions through your accountant's figure instead. Deductions shrink the base: compute the percentage on net profit after business expenses, not on gross invoices, since every deductible dollar lowers both the income-tax and the self-employment layer. Timing still matters: money set aside is only half the job — in the US it must actually be paid in quarterly estimates, because underpayment triggers penalties and interest even if you settle up in April.
Sources: the 15.3% self-employment rate and the 92.35% taxable base come from the IRS self-employment tax rules; quarterly deadlines and the $1,000 threshold are in the IRS estimated taxes guidance.
Every figure above is hand-checked: the worked example was recomputed independently of the calculator code, and tax figures track 2026 IRS limits. How we check every page.
Related calculators
The set-aside is one part of the picture: the QBI deduction calculator estimates the 20% pass-through deduction that lowers the bill, the mixed W2/1099 tax calculator handles income from an employer and your own clients in the same year, and the freelance invoice generator prints the set-aside line on every invoice so the money is separated at the point of payment. The percentages behind the 25–30% default are explained in the tax set-aside guide, and every write-off that shrinks the base is listed in the freelance tax deductions guide.