When you’re self-employed, earning money comes with an important responsibility that traditional employees don’t always have to think about: setting aside your own money for taxes.

There usually isn’t an employer automatically withholding federal income tax, Social Security tax, and Medicare tax from each payment you receive.

So how much should you actually save?

A common starting point is to consider setting aside approximately 25% to 30% of your net self-employment income for federal taxes. However, this is only a general budgeting guideline—not a rule that works for everyone.

Your actual tax obligation could be higher or lower depending on your income, expenses, filing status, other income, deductions, credits, state taxes, and individual circumstances.

Why Do Self-Employed Workers Need to Set Aside Money for Taxes?

When you’re an employee, your employer generally withholds taxes from your paycheck and sends that money to the appropriate tax agencies.

When you’re self-employed, you’re generally responsible for handling these payments yourself.

Your tax responsibilities may include:

• Federal income tax
• Self-employment tax
• State income tax, depending on where you live and work
• Local taxes, when applicable
• Quarterly estimated tax payments

If you spend all of the money your business brings in without accounting for taxes, you could face an unpleasant surprise when estimated payments or your tax return are due.

What Is Self-Employment Tax?

Self-employment tax generally covers Social Security and Medicare taxes for people who work for themselves.

The self-employment tax rate is generally 15.3%, consisting of:

• 12.4% for Social Security
• 2.9% for Medicare

However, that does not mean you simply multiply all of your business revenue by 15.3%.

Self-employment tax calculations are based on net earnings from self-employment and include additional rules and annual limits. Higher-income taxpayers may also be subject to Additional Medicare Tax.

Don’t Forget About Federal Income Tax

Self-employment tax is only part of the picture.

You may also owe federal income tax on your taxable income.

The amount depends on factors including:

• Your total income
• Filing status
• Business profit
• Other household income
• Tax deductions
• Tax credits
• Retirement contributions
• Other individual circumstances

This is why simply saving 15.3% may not be enough to cover your total federal tax obligation.

Is 25% to 30% a Good Amount to Set Aside?

For budgeting purposes, some self-employed workers choose to start by setting aside approximately 25% to 30% of their net self-employment income.

For example, suppose your business receives $8,000 during the month and you have $2,000 of deductible business expenses.

Your net business income would be:

$8,000 – $2,000 = $6,000

If you decided to use 30% as a temporary tax-savings target:

$6,000 × 30% = $1,800

You might transfer $1,800 into a separate tax savings account.

Again, this does not mean your actual tax bill will be exactly $1,800. It’s simply a way to build a tax reserve while you determine a more accurate estimate.

Should You Save a Percentage of Revenue or Profit?

This distinction is important.

Revenue is the total amount your business brings in before expenses.

Net profit generally reflects business income after deductible business expenses.

For example:

• Business revenue: $100,000
• Deductible business expenses: $30,000
• Net business profit: $70,000

Taxes generally aren’t calculated simply on the $100,000 of gross revenue without considering allowable business expenses.

Keeping accurate books throughout the year helps you understand your actual profit and estimate your taxes more accurately.

Who Needs to Make Quarterly Estimated Tax Payments?

Self-employed individuals commonly use estimated tax payments to pay federal income tax and self-employment tax throughout the year.

Generally, an individual may need to make estimated tax payments if they expect to owe at least $1,000 in tax for the year after subtracting applicable withholding and refundable credits and meet the other IRS requirements.

The U.S. tax system is essentially a pay-as-you-go system. Waiting until you file your tax return to pay everything you owe could result in an underpayment penalty.

When Are Estimated Tax Payments Due?

Federal estimated taxes are generally paid in four payment periods throughout the year.

The typical due dates are:

• April 15
• June 15
• September 15
• January 15 of the following year

If a due date falls on a weekend or legal holiday, the deadline generally moves to the next business day.

It’s important to check the applicable dates for the specific tax year rather than assuming every deadline will fall on exactly the same date.

How Much Should Your Estimated Payments Be?

The IRS provides Form 1040-ES, Estimated Tax for Individuals, to help taxpayers calculate estimated payments.

Generally, taxpayers can avoid an estimated-tax underpayment penalty by meeting certain payment requirements.

For many taxpayers, that means paying enough during the year to cover at least the smaller of:

• 90% of the tax owed for the current year, or
• 100% of the tax shown on the previous year’s return

Special rules apply in some situations. For example, certain higher-income taxpayers may need to use 110% of the previous year’s tax instead of 100%.

A Simple Way to Manage Your Tax Money

One of the easiest habits for self-employed workers is to treat taxes like another business expense.

Instead of waiting until a tax deadline approaches, consider transferring money into a separate savings account whenever you get paid.

For example:

You receive a $2,000 client payment.

You determine the expenses associated with your business and estimate your net income.

You then transfer your chosen tax reserve into a separate account before spending the remaining money.

This can help prevent tax money from accidentally being used for everyday personal or business expenses.

Don’t Forget About State Taxes

The 25% to 30% guideline is often discussed in the context of preparing for federal taxes, but it may not cover everything you owe.

Depending on where you live or conduct business, you may also have:

• State income taxes
• State estimated payments
• Local income taxes
• Other state or local business taxes

Someone living in a state with an individual income tax may need to reserve more than someone with the same federal tax situation in a state without one.

What If Your Income Changes Throughout the Year?

Self-employed income isn’t always predictable.

You might have an excellent first quarter followed by a slow summer—or your business could suddenly grow much faster than expected.

If your income changes significantly, your tax estimate should be reviewed as well.

The IRS allows taxpayers to recalculate estimated payments as circumstances change. If you originally estimated your income too high or too low, you can use the Form 1040-ES worksheet to update your calculations.

Common Tax Mistakes Self-Employed Workers Make

• Waiting until tax season to think about taxes
• Assuming self-employment tax is the only tax they owe
• Saving a percentage of income without reviewing their actual tax situation
• Missing quarterly estimated tax payments
• Mixing business and personal expenses
• Failing to track deductible business expenses
• Spending money that should have been reserved for taxes
• Failing to adjust estimated payments when income increases

How Much Should You Set Aside?

If you’re looking for a simple place to start, 25% to 30% of net self-employment income can be a useful general budgeting guideline while you determine your actual estimated tax obligation.

But don’t assume 30% is automatically enough—or that you necessarily need that much.

A freelancer earning $30,000, a married business owner with a spouse who has substantial W-2 withholding, and an independent consultant earning $200,000 could have dramatically different tax situations.

The better approach is to calculate an estimate based on your actual income, expenses, deductions, credits, filing status, and other sources of income.

Take the Guesswork Out of Self-Employment Taxes With PFGTAX

Being self-employed gives you freedom and flexibility—but it also means taking responsibility for taxes that an employer would normally help manage.

PFGTAX can help self-employed workers and small business owners estimate their tax obligations, plan for quarterly payments, identify eligible business deductions, and stay prepared throughout the year.

Instead of wondering whether you’ve saved enough, build a tax plan based on your actual financial situation.

Self-employed and unsure how much you should be setting aside? Contact PFGTAX to learn how we can help with tax preparation and year-round tax planning.

This article is intended for general educational purposes and should not be considered individualized tax, accounting, financial, or legal advice. Tax obligations vary based on individual circumstances.