What to set aside for quarterly taxes

By Arpit Patel

When you work for yourself, no one withholds tax from your pay — so the IRS asks you to pay it yourself, four times a year. Set aside too little and you get a surprise bill plus a penalty. Here's the number to hold back, and why.

Why freelancers pay quarterly

An employee never sees the tax taken from each paycheck — the employer withholds it and sends it in. As a 1099 contractor or business owner, there's no withholding, so the IRS requires estimated quarterly payments instead. The amount you owe is bigger than many expect, because you're paying two separate taxes, not one.

The two taxes you owe

First, self-employment (SE) tax: 15.3% covering Social Security (12.4%) and Medicare (2.9%). As an employee you'd split this with your employer; self-employed, you pay both halves. It applies to 92.35% of your net business profit, and the Social Security portion only applies up to the wage base ($184,500 in 2026); Medicare has no cap. Second, federal income tax, charged on your profit (minus the standard deduction) at the normal bracket rates. Then, in most states, state income tax on top.

The rule of thumb: 25–30%

For most freelancers, setting aside 25–30% of every payment into a separate tax account is a safe working number. Lean toward 30% (or more) if you're a higher earner or in a high-tax state, and toward 25% if your income is modest. It's a buffer, not an exact figure — the calculator gives you the precise amount, but the habit of skimming a fixed share off every invoice is what keeps you out of trouble.

Move your tax share out of your checking account the day you're paid — into a separate savings account you don't touch. Tax money that sits in your spending account has a way of disappearing.

The safe-harbor rule (how to avoid a penalty)

You can owe tax at filing without a penalty, as long as you prepaid enough during the year. The safe harbor: pay at least 90% of this year's tax, or 100% of last year's (110% if your prior-year income was high), spread across the four quarters. Paying last year's total in equal instalments is the simplest way to stay penalty-free even if this year turns out bigger.

The four due dates

Estimated taxes are due roughly mid-April, mid-June, mid-September, and mid-January of the following year. The periods aren't even calendar quarters, which trips people up — but paying a consistent amount on each date satisfies the requirement. Miss one and the penalty is essentially interest on the underpayment, charged per quarter.

One break in your favour

You get to deduct half of your SE tax when calculating income tax — the “employer half” is an above-the-line deduction. It softens the blow slightly, and it's already built into a proper estimate. Track deductible business expenses too: every legitimate expense lowers your net profit, which lowers both taxes at once.

Frequently asked questions