The Simple Formula (Works for 90% of Freelancers)
If you're just starting out as a 1099 contractor and want a quick answer: follow this chart based on your annual income.
| Annual 1099 Income | Percentage to Save | Why This Amount |
|---|---|---|
| Under $50,000 | 25-30% | Lower federal tax bracket + 15.3% SE tax |
| $50,000 - $100,000 | 30-35% | Moderate bracket + full SE tax burden |
| $100,000 - $200,000 | 35-40% | Higher bracket + state taxes kick in hard |
| Over $200,000 | 40-45% | Top brackets + Medicare surtax (0.9% extra) |
Real Example
You made $75,000 from freelancing this year → Set aside $22,500 to $26,250 (30-35% rule).
This simple percentage method works because it covers all three tax layers: federal income tax, self-employment tax, and state income tax. Let's break down why you need to save this much.
Why You Can't Just Save 15%
Tax Breakdown Infographic
(Visual showing 15.3% + 22% + 5% = 42.3% total tax)
The biggest mistake new 1099 workers make is only saving for self-employment tax (15.3%) and forgetting about income tax. Here's what you're actually paying:
1. Self-Employment Tax: 15.3%
- 12.4% Social Security — Capped at first $168,600 of income (2025 limit)
- 2.9% Medicare — No income cap, applies to all earnings
- +0.9% Medicare surtax — If you earn over $200k single / $250k married
💡 Why It's Called "Self-Employment" Tax
W-2 employees pay 7.65% in payroll taxes (their employer covers the other 7.65%). As a 1099 contractor, you're both the employee AND the employer, so you pay the full 15.3%.
2. Federal Income Tax: 10-37%
This is based on your tax bracket after the standard deduction. For 2025:
| Taxable Income (After Deduction) | Tax Rate | Example Tax Owed |
|---|---|---|
| $0 - $11,600 | 10% | $1,160 on $11,600 |
| $11,600 - $47,150 | 12% | $4,266 on $35,550 |
| $47,150 - $100,525 | 22% | $11,742 on $53,375 |
| $100,525 - $191,950 | 24% | $21,942 on $91,425 |
| $191,950+ | 32-37% | Varies significantly |
Note: Standard deduction for 2025 is $14,600 for single filers and $29,200 for married filing jointly.
3. State Income Tax: 0-13.3%
This is the layer most online calculators ignore. Your state tax depends entirely on where you live:
- 0% states: Texas, Florida, Nevada, Tennessee, Wyoming, Alaska, South Dakota, Washington, New Hampshire
- Low tax (1-5%): Pennsylvania (3.07%), Indiana (3.15%), Michigan (4.25%)
- High tax (8-13%): California (13.3%), New York (10.9%), New Jersey (10.75%)
State Tax Example: California vs Texas
Two freelancers each earn $100,000 in 1099 income:
- Texas freelancer: Pays 0% state tax = saves $0 extra
- California freelancer: Pays 9.3% state tax = saves $9,300 extra
That's a $9,300 difference just based on location! This is why you need a calculator that includes your state.
Calculate Your Exact Percentage (3-Step Method)
The simple formula above works for most people, but if you want your exact savings percentage, follow these three steps:
Step 1: Estimate Your Net Income
1099 gross income - business expenses = net income
Example Calculation:
- • Freelance income: $80,000
- • Business expenses: $12,000
- • Net income: $68,000
Step 2: Calculate Self-Employment Tax
The IRS lets you deduct half of your SE tax before calculating it. The formula:
Net income × 92.35% × 15.3% = SE tax
Using our example:
$68,000 × 0.9235 × 0.153 = $9,606 in SE tax
Step 3: Calculate Income + State Tax
This is where it gets complex (which is why we built a calculator). The formula:
- Net income - (SE tax × 0.5) - standard deduction = taxable income
- Apply your tax bracket rates (use IRS tax tables)
- Add your state tax percentage
Full Example (California resident):
- • Federal income tax: ~$6,800
- • State income tax (CA 9.3%): ~$4,500
- • Self-employment tax: $9,606
- • Total tax owed: $20,906
- • Percentage to save: $20,906 ÷ $68,000 = 30.7%
State Tax Differences (2025 Rates)
US Map Showing State Tax Rates
(Color-coded map: green = 0%, yellow = 1-5%, red = 8-13%)
Your state can add 0-13.3% to your tax bill. Here's a breakdown by region:
| State | Tax Rate | Example on $70k Income |
|---|---|---|
| California | 9.3% | +$6,510 |
| New York | 6.85% | +$4,795 |
| Texas | 0% | $0 |
| Illinois | 4.95% | +$3,465 |
| Oregon | 9.9% | +$6,930 |
| Pennsylvania | 3.07% | +$2,149 |
| Florida | 0% | $0 |
| New Jersey | 10.75% | +$7,525 |
Use the state selector in our 1099 tax calculator to see your specific rate automatically applied to your income.
How to Actually Set It Aside (Automation Tips)
Knowing the percentage is easy. Actually saving it is hard. Here are three proven methods freelancers use to automate their tax savings:
Method 1: Instant Transfer (Best for Discipline)
Every time you get paid, immediately transfer the tax amount to a separate account:
- Open a separate savings account (call it "Tax Savings" or "IRS Account")
- Calculate tax amount: Your percentage × payment received
- Transfer it immediately — before you spend anything
- Pretend that money doesn't exist until quarterly tax time
Real Example
Client pays you $5,000 → You instantly transfer 30% ($1,500) to your tax savings account → You only spend the remaining $3,500
Method 2: Weekly Auto-Transfer
Set up automatic weekly transfers from checking to savings:
Formula:
Weekly transfer = (Monthly 1099 income × Tax %) ÷ 4
Example: You earn $6,000/month → Tax rate 30% → Weekly auto-transfer = ($6,000 × 0.30) ÷ 4 = $450 every Monday
Method 3: Use a Tax Savings App
Several apps automatically calculate and set aside taxes for you:
- Keeper Tax — Tracks 1099 income, auto-calculates tax owed, sets aside the right percentage
- Found — Banking for self-employed with built-in tax savings (4% APY on tax savings)
- Lili — Automatically divides income into spending vs. tax buckets
- Novo — Free business banking with tax reserve features
Tax Savings App Screenshot
(Mobile app showing auto-save feature)
What If You're Saving Too Much?
Good problem to have! You'll get a tax refund in April.
But if you're consistently saving 40% and getting huge refunds (like $5,000+), you're giving the IRS an interest-free loan. Here's how to adjust:
- Review last year's actual tax return — what did you actually owe?
- Calculate your effective tax rate: Total tax ÷ Gross income
- Lower your savings percentage by 5% and monitor
- Invest the difference in a high-yield savings account (4-5% interest)
⚠️ Warning: Don't Go Below 25%
Even if you think you're saving too much, never drop below 25% unless you're in a 0% state tax state AND earning under $40k. It's better to get a refund than owe penalties.
Special Cases That Change Your Percentage
Case 1: You Have a W-2 Job + 1099 Side Hustle
Your W-2 already withholds taxes and covers some of your tax brackets. For your 1099 income, you might only need to save 20-25% instead of 30-35%.
Why? Your W-2 income already "fills up" the lower tax brackets (10%, 12%). Your 1099 income gets taxed at whatever bracket you're in AFTER the W-2 income.
Case 2: You Made a Big Purchase (Car, Equipment)
If you bought a $30,000 car for business use, that's a massive deduction. You can temporarily lower your savings percentage by 5-10% for that quarter.
Case 3: You Live in a High-Tax State
California, New York, New Jersey, Oregon, Hawaii residents should add 5-8% to the standard percentages because state tax hits harder.
Case 4: You're Married Filing Jointly
Combined household income might push you into a higher bracket. Use our calculator with your spouse's income included to get an accurate percentage.
Case 5: You Contribute to SEP-IRA or Solo 401(k)
Retirement contributions reduce your taxable income. If you're maxing out retirement (20-25% of income), you can save a lower tax percentage.
Example: You earn $100k and contribute $20k to SEP-IRA → Your taxable income is only $80k → You can save 28% instead of 35%.
Month-by-Month Savings Plan
Here's how to build your tax savings from $0 over the course of a year:
| Month | Goal | Action Steps |
|---|---|---|
| Month 1 | Save first 30% | Open separate savings account at Ally, Marcus, or Discover (4%+ interest) |
| Month 2 | Calculate exact % | Use calculator with your real numbers |
| Month 3 | Automate transfers | Set up weekly auto-save or use Keeper/Found app |
| Month 4 (Apr 15) | Pay Q1 taxes | Make first quarterly payment to IRS (use EFTPS or IRS Direct Pay) |
| Months 5-6 | Adjust if needed | Too much saved? Lower %. Too little? Increase and catch up. |
| Month 7+ | Stay consistent | Keep saving your percentage until next tax season |
Common Mistakes That Cost You
Common Tax Mistakes Infographic
(Visual checklist of mistakes to avoid)
❌ Mistake #1: Saving the Same % All Year
Your tax bracket changes as you earn more. A freelancer earning $30k in January is in the 12% bracket. By December when they've earned $80k, they're in the 22% bracket.
Solution: Recalculate your percentage every quarter using our calculator.
❌ Mistake #2: Using a Checking Account
You'll "borrow" from it. Guaranteed. Keep tax money in a separate high-yield savings account that's harder to access.
Best options: Ally Bank (4.35% APY), Marcus by Goldman Sachs (4.40%), Discover Savings (4.30%).
❌ Mistake #3: Forgetting State Taxes
Most online advice says "save 25-30%" but doesn't account for state tax. If you're in California or New York, add +5-10% to that number.
❌ Mistake #4: Not Tracking Deductions
Every $1,000 in deductions saves you ~$400 in taxes. Track everything:
- Home office expenses (mortgage/rent portion)
- Mileage at $0.67/mile (2025 rate)
- Software subscriptions (Zoom, Adobe, Slack, etc.)
- Phone and internet (business percentage)
- Health insurance premiums
❌ Mistake #5: Waiting Until April to Save
You'll owe penalties for not paying quarterly. The IRS charges 0.5% per month on unpaid taxes.
💸 Penalty Example
You owe $10,000 in taxes but wait until April instead of paying quarterly:
- • Miss Q1 payment by 12 months = $600 penalty
- • Miss Q2 payment by 10 months = $500 penalty
- • Miss Q3 payment by 7 months = $350 penalty
- • Total penalty: $1,450+ just for being late!
Frequently Asked Questions
Q: What if I had a bad month and can't save 30%?
Save whatever you can. Even 15% is better than $0. The key is to catch up during high-earning months. If you earn $2,000 in February but $8,000 in March, save 35% in March to make up for February.
Q: Do I need to save for taxes if I made under $400?
No. The IRS doesn't require self-employment tax under $400 in net earnings. But most freelancers earn much more than this annually.
Q: Can I deduct the taxes I set aside?
No. Taxes paid aren't deductible. Only business expenses (like software, mileage, home office) reduce your tax bill.
Q: What's the best type of savings account for tax money?
High-yield savings account (HYSA) with 4-5% interest. Your money earns interest while waiting for tax time. Look for accounts with no minimum balance and no monthly fees.
Q: Should I save the same percentage if I have multiple 1099 clients?
Yes. Add up all 1099 income from all sources and use the combined total to calculate your percentage. It doesn't matter if you have 1 client or 10 clients—total income is what matters.
Q: What if my income varies wildly month to month?
Use the percentage method instead of fixed amounts. Always save 30% (or your calculated %) of every payment, regardless of size. $500 payment? Save $150. $5,000 payment? Save $1,500.
Key Takeaways
- ✓ Save 25-35% of every 1099 payment for taxes (higher if you're in California/New York or earn over $100k)
- ✓ You're paying 3 taxes: Self-employment (15.3%), federal income (10-37%), and state (0-13.3%)
- ✓ Automate it: Transfer your percentage to a separate account immediately when you get paid
- ✓ Recalculate quarterly: Your percentage changes as your income grows
- ✓ Don't wait until April: Pay quarterly to avoid penalties (April 15, June 15, Sept 15, Jan 15)
- ✓ Track everything: Business expenses save you ~40% in taxes on every deductible dollar
Related Articles
Bottom line: The freelance life is unpredictable—but your tax savings shouldn't be. Save your percentage every single time you get paid, and April 15 becomes just another day.
Disclaimer: This article provides general tax information for educational purposes. Tax laws change frequently. Consult a CPA or tax professional for advice specific to your situation.