The single biggest shock for new freelancers isn't finding clients or setting rates — it's the tax bill. When you were an employee, taxes were invisible. Your employer withheld them, matched half of your Social Security and Medicare, and you never thought about it. As a freelancer, you're responsible for all of it.
This guide breaks down exactly what you owe, when you owe it, and how to plan for it so April doesn't destroy your bank account.
The Two Taxes Freelancers Pay
As a freelancer (1099 independent contractor), you pay two separate federal taxes on your income:
1. Self-Employment Tax (15.3%)
This is the big one most people don't see coming. Self-employment tax covers Social Security (12.4%) and Medicare (2.9%). When you had a W-2 job, your employer paid half of this — 7.65%. Now you pay both halves.
The tax is calculated on 92.35% of your net self-employment income (the IRS gives you a small break). Here's what it looks like at different income levels:
| Net Income | SE Tax (15.3%) | Monthly Impact |
|---|---|---|
| $50,000 | $7,065 | $589/mo |
| $75,000 | $10,597 | $883/mo |
| $100,000 | $14,130 | $1,178/mo |
| $150,000 | $21,195 | $1,766/mo |
Note: Social Security tax caps at $168,600 (2024 limit, adjusts annually). Income above that only pays the 2.9% Medicare portion, plus an additional 0.9% Medicare surtax on income over $200,000.
2. Federal Income Tax (10–37%)
On top of self-employment tax, you owe regular federal income tax just like everyone else. The US uses a progressive bracket system — you don't pay 24% on ALL your income, just on the portion that falls within the 24% bracket.
For a single filer in 2024, here's a simplified view:
| Taxable Income | Tax Rate |
|---|---|
| $0 – $11,600 | 10% |
| $11,601 – $47,150 | 12% |
| $47,151 – $100,525 | 22% |
| $100,526 – $191,950 | 24% |
| $191,951 – $243,725 | 32% |
| $243,726 – $609,350 | 35% |
| $609,351+ | 37% |
Good news: You can deduct half of your self-employment tax from your income before calculating income tax. This is one of the few deductions the IRS gives freelancers automatically — take it.
Total Tax Burden: A Real Example
Let's say you earned $100,000 in net freelance income as a single filer with the standard deduction:
| Tax Component | Amount |
|---|---|
| Net freelance income | $100,000 |
| Self-employment tax | -$14,130 |
| SE tax deduction (half) | +$7,065 deduction |
| Standard deduction | +$14,600 deduction |
| Taxable income for income tax | $78,335 |
| Federal income tax | -$12,616 |
| Total federal taxes | -$26,746 |
| Effective tax rate | 26.7% |
That's $26,746 on $100K of income — and that's federal only. If you live in a state with income tax (California, New York, Illinois, etc.), add another 3–13% on top.
Warning: This means on $100K of freelance income, you could owe $27,000–$35,000 in total taxes depending on your state. If you haven't been setting money aside, that April tax bill will be brutal.
Quarterly Estimated Taxes
The IRS doesn't let freelancers wait until April to pay their taxes. You're required to pay quarterly estimated taxes if you expect to owe $1,000 or more (which you almost certainly will).
The quarterly due dates are:
| Quarter | Income Period | Due Date |
|---|---|---|
| Q1 | January – March | April 15 |
| Q2 | April – May | June 15 |
| Q3 | June – August | September 15 |
| Q4 | September – December | January 15 (next year) |
Use IRS Form 1040-ES to calculate and pay your quarterly estimates. You can pay online at IRS.gov/payments — it takes about 5 minutes.
If you don't pay quarterly estimates and owe more than $1,000 at tax time, the IRS will charge you an underpayment penalty. It's not huge, but it's unnecessary and avoidable.
The 30% Rule
The simplest way to avoid tax surprises as a freelancer: set aside 25–30% of every payment you receive into a separate savings account. Don't touch it until it's time to pay quarterly taxes.
On a $5,000 client payment, immediately transfer $1,500 to your tax savings account. The remaining $3,500 is what you actually have to spend. This one habit will save you from the #1 reason freelancers fail financially.
Deductions That Lower Your Tax Bill
As a freelancer, you can deduct legitimate business expenses from your income before calculating taxes. Common deductions include:
- Home office deduction — Simplified method: $5 per square foot, up to 300 sq ft ($1,500 max). Or calculate the actual percentage of your home used for business.
- Health insurance premiums — If you pay your own health insurance, you can deduct 100% of premiums from your income tax (not SE tax).
- Software and subscriptions — Adobe, Figma, Slack, project management tools, cloud hosting, etc.
- Equipment — Computers, monitors, cameras, phones (business-use portion).
- Professional development — Courses, books, conferences, certifications.
- Internet and phone — Business-use percentage of your bills.
- Retirement contributions — SEP IRA (up to 25% of net earnings) or Solo 401(k) contributions are tax-deductible.
- Mileage — 67 cents per mile for business driving (2024 rate).
Track everything. Use a tool like QuickBooks Self-Employed, FreshBooks, or even a simple spreadsheet. Every deduction directly reduces your taxable income.
How Taxes Affect Your Freelance Rate
This is the critical connection most freelancers miss: your tax burden should be built into your hourly rate, not treated as an afterthought.
If you need $85,000 in take-home pay and your total tax burden is roughly 28%, you need to earn approximately $118,000 in gross revenue. Add in benefits, expenses, and profit margin, and your rate needs to be significantly higher than the simple salary-to-hourly conversion.
Factor Taxes Into Your Rate Automatically
Our calculator builds in self-employment tax, income tax, and all your expenses to find the hourly rate you actually need to charge.
Calculate My Real Rate →State Taxes: The Extra Layer
If you live in a state with income tax, you owe state taxes too. The highest-tax states for freelancers include California (up to 13.3%), New York (up to 10.9%), and New Jersey (up to 10.75%). On the other end, seven states have no income tax at all: Texas, Florida, Nevada, Washington, Wyoming, South Dakota, and Alaska.
If you're location-independent, this is worth factoring into where you choose to live. The difference between California and Texas on $100K of freelance income is roughly $8,000–$10,000 per year.
The Bottom Line
Freelance taxes aren't complicated once you understand the structure: self-employment tax (15.3%) plus income tax (10–37% depending on bracket), paid quarterly, reduced by legitimate business deductions.
The two things that will save you: set aside 30% of every payment, and pay your quarterly estimates on time. Do those two things and tax season becomes a non-event instead of a crisis.