If you just went from a W-2 job to freelancing (or picked up 1099 side gigs), the first client payment feels great. Then you realize nobody withheld anything. No employer paid half your Social Security. No payroll system sent money to the IRS. That's all on you now.
This post walks through what you actually owe as a US freelancer, how to turn it into a set-aside percentage you can apply to every payment, and when to send it to the IRS so you don't get hit with underpayment penalties.
Not tax advice. This is general information about how US federal taxes work for self-employed people, current as of 2026. Your situation (state, filing status, deductions, other income) changes the numbers. Check with a CPA or enrolled agent before relying on it.
The three (sometimes four) taxes you're saving for
1. Self-employment tax (Social Security + Medicare)
As an employee, you paid 7.65% and your employer paid the other 7.65%. As a freelancer you pay both halves: 15.3% in total (12.4% Social Security + 2.9% Medicare).
A few details people miss:
- It applies to 92.35% of your net self-employment earnings, not your gross invoices. Net = income minus business expenses.
- The 12.4% Social Security portion stops at the annual wage base (the SSA adjusts it every year; check ssa.gov for the current figure). Medicare's 2.9% has no cap, and an extra 0.9% Additional Medicare Tax applies above $200,000 (single) / $250,000 (married filing jointly).
- You can deduct half of your SE tax when calculating your adjusted gross income.
- It kicks in once you have $400 or more of net self-employment earnings in a year.
In practice, SE tax works out to roughly 14.1% of net profit (15.3% × 92.35%), for most freelancers below the wage base.
2. Federal income tax
This is the progressive bracket tax everyone pays (10%, 12%, 22%, 24%, 32%, 35%, 37%). Your freelance profit stacks on top of any other income, so if you also have a day job, your side income is taxed at your top bracket.
Many sole proprietors may also qualify for the Qualified Business Income (QBI) deduction, which can reduce taxable business income by up to 20%, subject to limits. Don't count on it until you've confirmed you qualify.
3. State (and maybe city) income tax
This ranges from zero (states like Texas, Florida, Washington, Nevada, Tennessee have no broad wage income tax) to high single digits or more in states like California or New York. Some cities, like New York City, add their own.
4. Optional: retirement contributions
Not a tax, but worth saving for in the same bucket: SEP-IRA or Solo 401(k) contributions reduce your taxable income, so deciding on them early changes how much tax you owe.
Turning that into a set-aside percentage
You don't need precision on day one. You need a number you can apply every time money lands. Here's a simple way to build one.
Step 1: Find your marginal federal bracket
Estimate your total taxable income for the year (freelance profit + any salary − standard deduction). Look up which IRS bracket that lands in for your filing status. That's your marginal rate.
Step 2: Add the pieces
set_aside % ≈ SE tax (~14%) + federal marginal rate + state rate
Example for illustration only (not a recommendation): a single freelancer in the 22% bracket, in a state with a ~5% income tax:
14% + 22% + 5% = ~41% of each marginal dollar of profit
That sounds scary, and it's an upper-ish bound, because:
- the standard deduction and lower brackets mean your average rate is lower than your marginal rate,
- half of SE tax and possibly QBI reduce your taxable income,
- expenses reduce profit before any of this applies.
So many freelancers round to a flat percentage somewhere between their average and marginal rates and adjust after the first year's return. The key is to pick one, write it down, and apply it to every payment.
Step 3: Apply it to profit, not gross
If a client pays $2,000 and you spent $300 on software and equipment for that work, you're setting aside a percentage of $1,700, not $2,000. That's why tracking expenses matters. Every legit business expense lowers what you owe.
Step 4: Move the money immediately
Open a separate savings account labeled "TAXES". When a payment lands, transfer the percentage that same day. Money you can't see is money you don't spend.
When to actually pay: quarterly estimated taxes
The IRS expects you to pay as you earn. If you expect to owe $1,000 or more when you file, you generally need to make estimated payments (Form 1040-ES). The usual due dates:
| Income earned | Payment due |
|---|---|
| Jan 1 – Mar 31 | April 15 |
| Apr 1 – May 31 | June 15 |
| Jun 1 – Aug 31 | September 15 |
| Sep 1 – Dec 31 | January 15 (next year) |
If a date falls on a weekend or holiday, it moves to the next business day. Notice the "quarters" aren't equal. Q2 is only two months long. You can pay online through IRS Direct Pay or your IRS online account. Your state probably has its own estimated payment schedule too.
The safe harbor rule (your penalty shield)
You generally avoid the underpayment penalty if your estimated payments plus any withholding cover at least:
- 90% of this year's tax, or
- 100% of last year's total tax (110% if last year's AGI was over $150,000, or $75,000 if married filing separately).
For a first-year freelancer with unpredictable income, the "100% of last year" option is the easiest: take last year's total tax from your return, divide by four, and pay that each quarter. You'll still owe the remainder in April, which is exactly why you keep setting aside your percentage on every payment.
Have a day job too?
If you also get a W-2 paycheck, you can raise your withholding on Form W-4 instead of (or as well as) making quarterly payments. Withholding is treated as paid evenly through the year, which can be handy if you're catching up late.
A simple spreadsheet setup that does this for you
You can build all of this in Google Sheets or Excel in about 20 minutes.
Columns for your income log
| Date | Client | Amount | Expenses linked | Net | Set-aside | Quarter |
|---|
Formulas (assuming your set-aside rate lives in a cell named TaxRate):
Net: =C2-D2
Set-aside: =E2*TaxRate
Quarter: =IF(MONTH(A2)<=3,"Q1",IF(MONTH(A2)<=5,"Q2",IF(MONTH(A2)<=8,"Q3","Q4")))
That Quarter formula follows the IRS payment periods above, not calendar quarters, so your totals match what's due on each date.
A quarterly summary
=SUMIF(G:G,"Q1",F:F)
Repeat for Q2–Q4 and you have the amount set aside for each payment period, next to the amount you actually paid. If "paid" is lower than "set aside", you're fine. If it's the other way round, raise your rate.
Safe-to-spend number
The single most useful cell:
Safe to spend = checking balance − (total set-aside − tax already paid)
In other words: what's in your account minus the tax you've earmarked but not yet sent. Seeing that number stops you from spending the IRS's money.
Common mistakes to avoid
- Setting aside from gross, then forgetting expenses: you'll over-save (fine) but under-deduct (not fine). Log expenses as they happen.
- Forgetting SE tax entirely: the most common first-year surprise. Income tax alone isn't the whole bill.
- Paying all at once in April: you'll likely owe an underpayment penalty on top.
- Ignoring state estimates: many states have their own quarterly schedule.
- Never revisiting the rate: after your first return, compare what you saved vs. what you owed and adjust.
Want a ready-made version?
If you'd rather not build the sheet yourself, I made Ponte Sheets, a bookkeeping spreadsheet for Excel and Google Sheets. The free Lite version gives you 12 monthly tabs, an income/expense/net-profit dashboard and accountant-ready categories. Pro ($19 one-time, no subscription) adds the automatic tax set-aside (income tax + VAT), safe-to-spend, a steady monthly salary and pending invoices: get it on Gumroad. (Disclosure: I'm the maker.)
TL;DR
- You owe SE tax (~14% of net profit) + federal income tax + state tax.
- Add your rates to get a set-aside percentage; apply it to net income on every payment.
- Move it to a separate account the same day.
- Pay quarterly (Apr 15, Jun 15, Sep 15, Jan 15) and use the safe harbor rule to avoid penalties.
- Revisit your rate after you file.
Again: general info, not tax advice. Rates and thresholds change yearly. Confirm on irs.gov or with a tax pro.
