Freelance taxes: what to set aside from every invoice

The freelance tax problem is not that the taxes are high (they are what they are); it is that nobody withholds them for you. An employee’s pain is distributed across 26 paychecks. Yours arrives as a bill, four times a year, sized by math most people never ran. Let’s run it.

The two taxes stacked on your profit

Self-employment tax: 15.3%. Social Security (12.4%, capped at the 2025 wage base of $176,100) plus Medicare (2.9%, never capped), applied to 92.35% of your net profit. This is the one that shocks first-year freelancers, because it starts at dollar one: there is no standard deduction against it. The SE tax calculator itemizes it.

Federal income tax. Ordinary brackets applied after the standard deduction ($15,000 single, 2025) and after deducting half your SE tax. Progressive, so your effective rate is far below your bracket.

State tax stacks on top where it exists.

What that means per invoice

The useful form of all this is one number: the percent of every payment that is not yours. The set-aside calculator computes it from your expected profit and state; typical outputs run from about 18% at modest profit in a no-tax state to 40%+ at high profit in California or New York.

The system that works: a separate savings account, a transfer the day each invoice is paid, at your computed percent. Not a spreadsheet intention. A transfer.

Quarterlies, and the trick that makes penalties impossible

The IRS wants its money as you earn: April 15, June 15, September 15, January 15. Miss the pace and you owe an underpayment penalty, which is really interest (around 8% annualized lately) on the shortfall. Annoying, not fatal.

Here is the part too few freelancers use: safe harbor. Pay 100% of last year’s total tax (110% if you made over $150k) in four equal quarterly payments, and you cannot be penalized, no matter how much you earn this year. Great income year? The extra tax is due in April, but penalty-free, and the cash worked for you all year. The quarterly calculator computes both your estimated bill and your safe-harbor payment.

The honest summary

Compute your percent, automate the transfer, pay safe harbor if last year is a guide, and stop treating April as a surprise. Freelance taxes reward exactly one skill: boring consistency.