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Taxes
How much of each payment should you set aside for tax?
A simple way to pick a percentage, check it each quarter and stop dreading April.
Jo RuizContributor, copywriter · 5 min read
There's no universal number, but there is a reliable way to find yours. You need last year's total tax bill and last year's gross income.
Start with your effective rate
Divide the total tax you paid by your gross freelance income. If you paid $14,000 on $56,000, your effective rate was 25%. Add 3–5 points as a buffer for growth and you have your starting percentage.
| Gross income | Typical set-aside |
|---|---|
| Under $40,000 | 20–25% |
| $40,000–$100,000 | 25–30% |
| Over $100,000 | 30–35% |
Check it every quarter
When you pay estimated tax, compare it to what's in your pot. More than enough? Lower the percentage by a point. Short? Raise it now, not in April.
- Keep the pot in a separate account you don't see daily.
- Move the money the moment a payment lands, not at month end.
- Let it earn interest while it waits.
