How Much Should You Set Aside for Taxes on 1099 Income?
You just landed a $6,000 project as a 1099 contractor. How much of it is actually yours? For most freelancers the honest answer is: less than you think, because nobody is withholding taxes for you the way an employer does for a W-2 employee. The money hits your account in full, feels like income, and then the IRS wants a chunk of it later. The fix is boring but effective: set aside a percentage of every payment the moment it arrives.
The short answer: 25–30% of your net profit
For most self-employed people, banking 25% to 30% of net profit (what you earned after business expenses) covers the combined federal bite. That range exists because two separate taxes stack on your freelance income:
- Self-employment tax — 15.3%. This is Social Security (12.4%) and Medicare (2.9%). A W-2 employee splits this with their employer; when you work for yourself you pay both halves. It applies to 92.35% of your net profit. (IRS: Self-Employment Tax)
- Federal income tax — 10% to 37%. Your profit also counts as ordinary income, taxed at the normal 2026 marginal brackets after your standard deduction ($16,100 single, $32,200 married filing jointly for 2026).
One piece of good news that keeps the total from being even higher: you get to deduct one-half of your self-employment tax before income tax is calculated, so you are never taxed twice on the same dollars.
Why the percentage isn't fixed
The 25–30% rule is deliberately a little high for most people, because over-saving is a much better mistake than under-saving. But your real rate depends on your numbers. A single freelancer netting $40,000 pays a lower effective rate than one netting $150,000, because the higher earner reaches the 22% and 24% income-tax brackets. Two things push your set-aside percentage down:
- The standard deduction. Your first $16,100 of income (single, 2026) is shielded from income tax entirely — though self-employment tax still applies from dollar one.
- The QBI deduction. Many solo businesses can deduct up to 20% of qualified business income under Section 199A, below the income thresholds. That lowers taxable income further.
A system that actually works
Rules only help if you follow them. The freelancers who never panic in April tend to do three simple things:
- Open a separate savings account just for taxes. Out of sight, out of spending.
- Transfer your set-aside percentage the day you get paid, not at month-end. If you invoice $6,000, move ~$1,700 immediately and treat the rest as yours.
- True it up each quarter. Run the real numbers, pay your quarterly estimated tax, and adjust the percentage if you are consistently over or under.
Remember this covers federal tax only. Most states also tax your income, so if you live somewhere with a state income tax, add that rate on top of your federal set-aside.
This is general educational information, not tax advice. Your situation may differ — confirm the numbers with a qualified tax professional before you file or pay.
Frequently asked questions
How much should I set aside for taxes as a 1099 contractor?
For most self-employed people, setting aside 25% to 30% of net profit covers the combined federal self-employment tax (15.3%) and federal income tax. The exact percentage depends on your income and filing status, and does not include state income tax, which you should add on top.
Why do freelancers owe more tax than employees?
A W-2 employee splits the 15.3% Social Security and Medicare tax with their employer, who also withholds income tax from each paycheck. A self-employed person pays both halves of that 15.3% (self-employment tax) and has nothing withheld, so the full bill is theirs to plan for and pay.
Does the 25–30% set-aside include state taxes?
No. The 25–30% rule of thumb covers federal self-employment and income tax only. Most states also tax income, so if your state has an income tax, add its rate to your federal set-aside percentage.