1099 Tax Set-Aside: What Percent to Save in 2026

By Maya Ellison · Updated September 2026 · Reviewed against IRS and official sources

US freelancers should set aside 25–30% of net freelance income (profit after business expenses) for federal tax, plus state income tax where it applies — about 14 of those percentage points are self-employment tax, and the rest is income tax at your marginal rate. When a client pays you the full amount lands in your account, but freelancers are businesses with no employer withholding for them, so splitting the money before you spend it is your job. Below: the arithmetic, a worked example on a real number, and the two signals that should push your percentage higher or lower.

US freelancers: the two-layer tax

Your set-aside has to cover two separate taxes:

1. Self-employment (SE) tax — 15.3%: Social Security (12.4%) plus Medicare (2.9%). Unlike employees, freelancers pay both halves. Per the IRS, it applies when net earnings reach $400, and only 92.35% of net earnings are taxable. Major tax-software makers (TurboTax, Jackson Hewitt) publish the same breakdown in their self-employment guides.
2. Federal income tax at your marginal bracket (10–37%): freelance income stacks on top of any other income, so it's taxed at your highest bracket, not an average one. State income tax adds more where applicable.

Practical rule of thumb used by most US tax advisors: 25–30% of net income (income after business expenses). High earners in high-tax states should push toward 35–40%.

Build your own number in three steps

Formula: Set-aside = net profit × (self-employment tax rate + income tax rate + state tax rate + a 1–2 point cushion).

Only the first term is fixed arithmetic. Self-employment tax is 15.3% of 92.35% of net profit, which works out to 14.13% of net profit before a dollar of income tax — computed exactly as the IRS self-employment tax rules describe it. The income tax term depends on where your profit lands in the 10–37% brackets, the state term is whatever your state charges (zero in states with no income tax), and the cushion covers rounding and refunds that arrive in May instead of February.

Worked example: a $60,000 year

A developer nets $60,000 after expenses in 2026, with no other household income and no state income tax.

1. Self-employment tax: $60,000 × 92.35% = $55,410 of taxable net earnings, then $55,410 × 15.3% = $8,478.
2. Federal income tax: assuming the profit is taxed at an effective 12% after deductions and credits, $60,000 × 12% = $7,200.
3. Annual total: $8,478 + $7,200 = $15,678, which is 26.1% of net profit.
4. With the cushion: round up to 27%, so $60,000 × 27% = $16,200 moved to the tax account as invoices arrive.
5. Per quarter: $16,200 ÷ 4 = $4,050, close to what four estimated payments draw down if you owe across the year (deadlines in our quarterly taxes guide).

Formula: Quarterly transfer = (net profit × set-aside percentage) ÷ 4.

Practitioner note: In practice, the cushion is the row freelancers skip and the one they miss most. The $900 above looks like rounding until your effective rate lands two points higher than planned — then it is the difference between paying the January voucher from the tax account and paying it from rent money. Fund the full 27% on every invoice, starting with the big ones.

Everyone else: substitute your social contribution

In the UK, Class 2/Class 4 National Insurance plus income tax means a similar 25–30% for typical earners (check gov.uk self-employment guidance for current rates). EU countries vary widely: social contributions can run 25–45% of professional income. The principle is universal even though the rates aren't: set aside income tax + social contributions, computed on net, not gross.

Gig workers, you're included

Uber, DoorDash, and Etsy income are all self-employment income in the eyes of the tax authorities. The platforms generally do not withhold (though some now offer voluntary withholding). Multiple tax-tool providers — including Bench and SurePayroll, whose calculators we've benchmarked — make the same point: gig platforms report your earnings to the IRS on 1099 forms, so the income is visible whether or not you set money aside.

What pushes your percentage up — or down

Push it up when the income tax layer grows. A spouse's W-2 salary stacks on top of your profit, so every freelance dollar is taxed at the household's higher marginal rate instead of its own. State income tax adds several points on its own. So does a year with investment income, a side contract you forgot about, or your first big April bill. None of those change the 14.13% self-employment floor; they change the layer above it.

Pull it down by claiming deductions you actually qualify for. A home office (our home office calculator sizes both the simplified and regular methods), equipment, and business software come straight off net profit, which lowers the self-employment layer and the income tax layer at the same time. After that, the qualified business income deduction removes up to 20% of qualified business income from taxable income (per the IRS), and a retirement contribution defers income tax on money you were already planning to save — see the freelancer retirement plans guide for the 2026 limits. The QBI deduction and the retirement contribution shrink income tax only; the home office shrinks both layers.

Where the 25–30% rule goes wrong:

• You save the percentage but never send quarterly vouchers. The account earns interest while penalties accrue per missed deadline — saving without paying is only half the system.
• A bumper year follows a near-zero year. Last year's tax was ~$0, so the prior-year safe harbor requires almost nothing quarterly — but the full April bill still arrives; pay on current-year estimates anyway.
• You move states mid-year. Two part-year returns with two sets of rates — one flat percentage stops describing either state, so recompute per state.
• Windfall income lands in the same return. A bonus or asset sale lifts the marginal rate on every freelance dollar stacked above it — the income-tax layer grows while the 14.13% floor stays put.

The January true-up

Your set-aside percentage is a forecast, and forecasts get corrected. In the first week of January, pull real numbers — total income, total expenses, retirement contributions — recompute the three layers with actual figures, and compare the result to what is sitting in the tax account. Top the account up before the January 15 fourth-quarter deadline rather than in April, when the bill and the penalty arrive together. If the account is overfunded, the surplus becomes an intentional April payment or a deliberate boost to your emergency fund. Either way you chose the outcome instead of discovering it.

Set aside on profit, not deposits

Apply your percentage to net profit after expenses, not gross deposits. Every deductible expense — software, mileage, home office, supplies — lowers both the self-employment layer and the income-tax layer at the same time, so taking a cut of gross revenue reserves money that was never taxable in the first place. The practical order is: subtract the month's business expenses from what clients paid you, then move 25–30% of what is left into the tax account. When a big invoice clears, fund the transfer on the net figure the same day rather than waiting for month-end.

Monthly bookkeeping checklist

1. Reconcile records: match every client payment and receipt against your invoices so the profit figure you apply the percentage to is real.
2. Review the mileage log: total business miles for the month and file the log with the month's records before trips blur together.
3. Review expenses monthly: confirm each charge was business, coded to the right category, and backed by a receipt.
4. Entity check: confirm the business structure you are operating under still matches how you are filing, and flag any change for your preparer before year-end.
5. Move the set-aside: transfer the month's percentage on net profit into the separate tax account the same week the payments clear.

Make it automatic

1. Open a separate high-yield savings account labeled "taxes."
2. On the day each payment arrives, transfer your percentage (use our tax set-aside calculator for the exact figure).
3. In the US, pay quarterly estimated taxes (April, June, September, January) — generally required once you expect to owe $1,000+ in a year. Our quarterly taxes guide covers the deadlines.

The mistake that costs double

Underpayment doesn't just leave a big April bill — US underpayment triggers penalties and interest on top (the IRS charges interest from each missed quarterly deadline). Spending your tax money is effectively borrowing from the government at the worst possible terms.

Quick reference: the numbers for 2026

• Self-employment tax: 15.3% on 92.35% of net profit, so 14.13% of net profit before income tax.
• Small-earner filing threshold: $400 of net earnings from self-employment.
• US federal set-aside band: 25–30% of net profit; 35–40% if you have state tax or a second earner in the house.
• Quarterly due dates: April 15, June 15, September 15, January 15.
• Penalty safe harbor: 90% of the current year's tax or 100% of last year's tax, rising to 110% if last year's adjusted gross income exceeded $150,000 — the thresholds published in the IRS estimated taxes guidance.
• Qualified business income deduction: up to 20% of qualified business income, which sits on top of your deductions.
• Shrinking the base: every item in the freelance tax deductions guide lowers the net profit this percentage applies to.

Print that list, keep it next to your savings transfer, and revisit it whenever a client, a state, or a spouse changes the arithmetic.