How much should you really set aside for 1099 taxes?
The short answer most guides give is "25 to 30% of every payment." That's a reasonable starting point, but it hides a lot — your real number depends on how much you earn, how much you deduct, and which state you live in. This calculator works it out from your actual figures instead of a flat rule of thumb.
Why 1099 income is taxed differently than a paycheck
When you're a W-2 employee, your employer withholds income tax from every paycheck and quietly pays half of your Social Security and Medicare taxes for you. As a 1099 contractor, none of that happens automatically. You receive the full payment, and you're responsible for both halves of Social Security and Medicare — that's the 15.3% self-employment tax — plus your federal income tax, and your state's if it has one. Nobody sets that money aside for you, which is exactly why a surprise bill in April is so common among freelancers in their first year.
The two taxes every freelancer owes
Your 1099 income faces two separate federal taxes. The first is self-employment tax: a flat 15.3% applied to 92.35% of your net profit, split between 12.4% for Social Security (only on income up to $184,500 in 2026) and 2.9% for Medicare with no ceiling. The second is regular federal income tax, calculated on your taxable income after the standard deduction, the QBI deduction, and half of your self-employment tax are subtracted. These stack on top of each other, which is why your effective tax rate as a freelancer is usually higher than a salaried worker earning the same gross amount.
How much to set aside by income level
As a rough orientation before you run your own numbers: a freelancer netting around $40,000 typically needs to set aside roughly 20–25% for federal taxes alone; someone netting $70,000–$90,000 lands closer to 25–28%; and higher earners, or anyone in a state with meaningful income tax, can climb past 30%. These are federal-only ballparks — the calculator above adjusts for your expenses and lets you add your state rate, which is what turns a rough band into a number you can actually budget around.
Setting aside vs. paying quarterly
Setting money aside and paying it are two different habits. The safest approach is to move your set-aside percentage into a separate savings account the moment each client payment lands, so the money is never in your spending account to begin with. Then, four times a year, you send the IRS an estimated payment from that account. If you expect to owe $1,000 or more for the year, those quarterly payments aren't optional — skipping them can trigger an underpayment penalty even if you pay the full amount in April.
Lowering what you owe, legitimately
Every dollar of legitimate business expense you track lowers your net profit, and since both your self-employment tax and your income tax are calculated on that net profit, deductions reduce both at once. Home office costs, software subscriptions, equipment, professional development, a portion of your phone and internet, and business travel are common examples. Contributing to a SEP-IRA or Solo 401(k) reduces your taxable income further. The freelancers who overpay are almost always the ones who don't track expenses consistently through the year.