Estimates only, not tax advice.
TaxQuarterly

How Much Should You Set Aside for Taxes on 1099 Income?

The first time a client pays you on a 1099, the full amount lands in your account. Nobody took out taxes. The question every new freelancer asks is: how much of this is actually mine?

Why 1099 income feels bigger than it is

When you're an employee, your employer withholds income tax and pays half of your Social Security and Medicare taxes. As an independent contractor you're both the employee and the employer, so you pay both halves — that's self-employment (SE) tax — and you're responsible for paying income tax yourself through estimated payments (IRS: Self-employed individuals tax center).

The two federal taxes you're saving for

1. Self-employment tax. 15.3% — 12.4% for Social Security and 2.9% for Medicare — on 92.35% of your net self-employment earnings (IRS: Self-employment tax). The Social Security portion stops at the yearly wage base; an extra 0.9% Medicare tax applies to high earners. Effectively, SE tax is about 14.1% of net profit for most freelancers below the wage base.

2. Federal income tax. Charged on your total taxable income at progressive bracket rates. You get to deduct half of your SE tax, your standard deduction, and possibly the qualified business income (QBI) deduction before the brackets apply.

Then, depending on where you live, state and local income tax.

Why "save 25–30%" is only a starting point

You'll see 25–30% quoted everywhere, and for many freelancers it's in the right range. But the right number depends on:

A part-time tutor earning a few thousand a year and a full-time consultant at $150,000 should not use the same percentage.

A 4-step method to find your own percentage

  1. Project your yearly net profit. Use year-to-date income plus a realistic estimate for the remaining months, minus expenses.
  2. Estimate the year's tax. SE tax (profit × 92.35% × 15.3%) plus income tax on your total taxable income. The worksheet in Form 1040-ES walks through it.
  3. Subtract what's already covered. W-2 withholding and estimated payments already made.
  4. Divide the remaining tax by your remaining expected profit. That's your set-aside rate for every new payment from now on.

Recalculate whenever your income changes meaningfully — a new client, a slow month, a big project.

Where to keep the money

Open a separate savings account and move your set-aside percentage there the day each payment arrives. Out of sight, out of spending. Interest earned is taxable but small compared with the peace of mind.

From "set aside" to "sent to the IRS"

Saving isn't enough: the IRS expects payment during the year. If you expect to owe $1,000 or more, you generally need to make estimated payments (IRS: Estimated taxes) on April 15, June 15, September 15 and January 15, 2027 for the 2026 tax year.

If you have a W-2 job, there's a shortcut: increase withholding with a new Form W-4 (Step 4(c), extra withholding). Withholding is treated as paid evenly through the year, which can fix an underpayment even late in the year (Publication 505).

To avoid the underpayment penalty without perfect forecasting, aim for the safe harbor: the smaller of 90% of this year's tax or 100% of last year's (110% if last year's AGI exceeded $150,000). Our safe harbor guide explains it.

Let a calculator do it

TaxQuarterly estimates federal income tax + SE tax from your profit and other income, gives you a set-aside percentage, your safe-harbor amount and each quarterly payment with its due date. It's free and runs in your browser.

FAQ

Should I set aside from gross or net? Calculate on net profit, but the simplest habit is to apply your percentage to each payment you receive and true up at year end.

I saved too much — is that bad? Over-saving becomes a cushion or a refund; under-saving becomes a penalty plus a cash crunch.

Does the set-aside cover state tax? Only if you include it. Add your state's rate separately.

General information, not tax advice.

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