Disclaimer: This article provides educational estimates and frameworks, not tax advice. Tax obligations vary by jurisdiction, income level, business structure, and individual circumstances. Consult a qualified tax professional (CPA or enrolled agent) for advice specific to your situation.
Why freelancers are surprised by their tax burden
Salaried employees never see the employer's share of FICA. Freelancers pay both sides. The 15.3% self-employment tax alone (12.4% Social Security + 2.9% Medicare, on income up to the Social Security wage base) is money that salaried employees never realize their employer is covering.
Add federal income tax (10 to 37% marginal rates) and state income tax (0 to 13.3% depending on state), and the total effective tax rate for a freelancer earning $80,000 to $150,000 is typically 28 to 40%. This is before business expenses.
How to estimate your freelance take-home rate
Step 1: Start with your effective hourly rate
This is your fee divided by actual hours worked. If you do not know it, calculate it now. For the full methodology, see the effective hourly rate guide.
Step 2: Subtract self-employment tax (approximately 15.3%)
The self-employment tax applies to 92.35% of net self-employment income. The effective SE tax rate on gross income is approximately 14.1%.
Example: $120/hr effective x 0.859 = $103.08/hr after SE tax. For more detail, see the IRS Self-Employment Tax page.
Step 3: Estimate income tax
Income tax rates are progressive, meaning you pay different rates on different portions of your income. Your actual rate depends heavily on deductions: the standard deduction, business expenses, retirement contributions, health insurance deduction, and the Qualified Business Income (QBI) deduction can all significantly reduce taxable income.
As a rough estimate for a single filer with moderate deductions, expect an effective federal income tax rate of 15 to 22% on gross self-employment income of $80,000 to $150,000. Add state income tax (0 to 13.3%) based on your state.
Step 4: Subtract business expenses
Common freelance business expenses as a percentage of gross income:
- Software and tools: 2 to 5%
- Health insurance: 5 to 15% (if not covered by a spouse)
- Coworking or office space: 3 to 8%
- Professional development: 1 to 3%
- Retirement contributions: 10 to 20% (recommended)
Total: 20 to 50% of gross income, heavily dependent on personal situation.
Step 5: Calculate your take-home effective rate
Worked example: $120/hr effective rate. After SE tax ($17/hr), estimated income tax ($22/hr), and expenses ($12/hr), take-home is approximately $69/hr. That is 58% of the effective hourly rate, or 42% going to taxes and expenses.
The take-home rate table
| Effective hourly rate | Estimated take-home (single, US, moderate expenses) | Take-home % |
|---|---|---|
| $75/hr | $46 to $53/hr | 61 to 71% |
| $100/hr | $58 to $68/hr | 58 to 68% |
| $125/hr | $70 to $83/hr | 56 to 66% |
| $150/hr | $81 to $97/hr | 54 to 65% |
| $200/hr | $103 to $125/hr | 52 to 63% |
Ranges reflect variations in state tax, business expenses, and deductions. These are estimates for US-based freelancers. Tax structures vary significantly by country.
Why this matters for setting your target rate
Your target effective hourly rate should be set based on your desired take-home, not your desired pre-tax income. If you want to take home $80/hr, you need an effective hourly rate of approximately $125 to $140/hr depending on your tax situation and expenses.
Most freelancers set targets based on pre-tax effective rates and are surprised when take-home is 35 to 45% less. This is one of the most common causes of chronic underpricing: the target itself is too low because it does not account for the tax and expense burden. For a complete framework on setting your target, see how much to charge as a freelancer.
Tax reduction strategies for freelancers (overview, not advice)
The following are common strategies US-based freelancers use to reduce their tax burden. Each has specific requirements and trade-offs. Consult a tax professional before implementing any of these.
- Solo 401(k) or SEP IRA contributions: Reduce taxable income by up to $23,500 to $69,000 depending on plan and income
- Health insurance deduction: Above-the-line deduction for self-employed individuals
- Home office deduction: Simplified or actual method
- Quarterly estimated tax payments: Avoid underpayment penalties
- S-Corp election at higher income levels: Potentially reduces SE tax, but adds complexity and cost
- QBI (Qualified Business Income) deduction: Up to 20% of qualified income for pass-through entities
The specifics depend on individual circumstances. A CPA or enrolled agent can help you determine which strategies apply and how to implement them correctly. Use the SBA startup cost calculator for a detailed breakdown of your business expenses.
The Sengi roadmap: Safe-to-Spend tax estimator
Sengi's roadmap includes a Safe-to-Spend tax estimator that will show your estimated take-home rate alongside your effective hourly rate, giving you a more complete picture of project profitability after taxes. This feature does not exist yet, but the concept described in this article is what it will calculate.
In the meantime, the math above provides a manual framework. Start by calculating your effective hourly rate, then apply the tax and expense estimates from this article to find your approximate take-home rate. See all current features.
Freelancer tax estimation: FAQ
How much tax do freelancers pay?
US-based freelancers typically pay 28 to 40% of their net income in combined taxes (self-employment tax of approximately 15.3% plus federal and state income tax). The exact rate depends on income level, state of residence, deductions, and business structure. After taxes and business expenses, freelancers typically take home 55 to 70% of their effective hourly rate.
What is the self-employment tax rate for freelancers?
The self-employment tax rate is 15.3% (12.4% for Social Security, up to the wage base of $176,100 in 2025, plus 2.9% for Medicare on all income). This is applied to 92.35% of net self-employment earnings, making the effective SE tax rate approximately 14.1% of gross self-employment income.
How do I calculate my freelance take-home pay?
Start with your effective hourly rate (project fee divided by actual hours). Subtract estimated self-employment tax (approximately 14% of gross), estimated income tax (varies by bracket and state), and business expenses (tools, insurance, office). The remainder is your take-home rate. For a quick effective rate calculation, use the rate calculator.
Should I set my freelance rates based on pre-tax or after-tax income goals?
Set your target effective hourly rate based on your desired after-tax, after-expense take-home rate. If you want to take home $80/hr, you need an effective hourly rate of approximately $125 to $140/hr (depending on your tax bracket and expenses). Setting targets based on pre-tax rates leads to chronic underpricing because the tax and expense burden is larger than most freelancers expect.
Is this article tax advice?
No. This article provides educational estimates and frameworks for understanding the relationship between effective hourly rate and take-home pay. Tax obligations vary significantly by jurisdiction, income level, business structure, and individual circumstances. Consult a qualified tax professional (CPA or enrolled agent) for advice specific to your situation.
What tax deductions are available to freelancers?
Common deductions include: health insurance premiums (above-the-line deduction), home office expenses, business software and tools, professional development and courses, retirement contributions (Solo 401(k), SEP IRA), business travel, and the Qualified Business Income (QBI) deduction. Each has specific requirements and limitations. A tax professional can help you maximize deductions legally.