How much should I set aside for taxes when self-employed?
Short answer: many self-employed people set aside 25–30% of their net income. Here's why, and how to make it automatic so a tax bill never catches you off guard.
The two taxes you're saving for
When you work for yourself, your taxes come in two separate pieces, and it's easy to forget the first one exists:
- Self-employment tax— Social Security and Medicare. It's a flat 15.3% (12.4% + 2.9%) charged on 92.35% of your net business profit. As an employee your employer quietly pays half of this; on your own, you pay both halves.
- Income tax — federal (and state, in most states), charged on your taxable income at your bracket. This is the one most people remember.
Because the self-employment piece is on top of income tax, the all-in rate on your business profit is usually higher than your income-tax bracket alone suggests. That gap is exactly what surprises first-year freelancers in April.
A simple rule of thumb
Set aside 25–30% of your net self-employment income (what's left after business expenses). For many sole proprietors that comfortably covers both taxes. Adjust from there:
- Higher earners or high-tax states → lean to 30–35%+.
- Lower total household income, or lots of deductions → you may need closer to 20%.
- A working spouse, W-2 withholding, or big credits change the picture — a real forecast beats any flat number.
Two things that lower it
Self-employment isn't all bad news on taxes:
- Half of your self-employment tax is deductible against income tax — an above-the-line adjustment you get automatically.
- The Qualified Business Income (QBI) deduction can knock up to 20% off your qualified business income, subject to income limits and phase-outs.
Make it automatic
The freelancers who never sweat April aren't better at math — they just removed the decision. The reliable system:
- Open a separate savings account just for taxes.
- Every time a client pays you, immediately move your set-aside percentage into it. Treat that money as gone.
- Pay your quarterly estimated taxes out of that account on the four due dates so the balance never balloons.
This is exactly what Taxottic automates: it watches your income as it lands, keeps a running forecast of what you'll owe (federal and state), and tells you the amount to set aside — so the number is based on your real situation, not a guess.
Frequently asked
What percentage should I set aside for self-employment taxes?
A common starting point is 25–30% of your net self-employment income. That has to cover self-employment tax (15.3%) plus federal income tax, and state income tax if your state has one. If you're in a higher bracket or a high-tax state, lean toward the top of that range or above; if you have lots of deductions or a low total income, you may need less. The cleanest habit is to move a fixed percentage of every payment you receive into a separate savings account.
What is the self-employment tax rate?
15.3%— 12.4% for Social Security plus 2.9% for Medicare. It's charged on 92.35% of your net self-employment earnings. The Social Security portion only applies up to an annual wage base the IRS adjusts each year; above that, only the 2.9% Medicare portion continues (with an extra 0.9% Medicare surtax at higher incomes). You can deduct half of your self-employment tax when figuring your income tax.
Is self-employment tax on top of income tax?
Yes. Self-employment tax (Social Security and Medicare) is separate from and in addition to federal income tax. As an employee these are split with your employer and withheld from your paycheck; when you're self-employed you pay both halves yourself, which is why your total tax can be higher than you'd expect from income-tax brackets alone.
This guide is general information, not tax, legal, or accounting advice, and isn't a substitute for a licensed CPA or tax attorney. Tax rules change and depend on your situation; figures here are illustrative. Verify specifics against current IRS guidance or with your preparer.