How much should you set aside for taxes when you're self-employed?

Sign up for MiniCFO.io

When you work for yourself, nobody holds back taxes from your pay. Every dollar a customer pays you lands in your account, and it's easy to treat all of it as yours. Then a quarterly payment or an April bill shows up. Setting a slice of every payment aside, as you get paid, is the simplest way to avoid that surprise.

This guide explains the usual way self-employed people estimate that slice, walks through the same math our free tools use, and points to the IRS pages behind each number.

Why you have to set money aside at all

The IRS expects tax to be paid during the year, not only when you file. Its estimated tax FAQ says you generally must make estimated tax payments if you expect to owe at least $1,000 in tax for the year after withholding and refundable credits (there are more conditions, so read the FAQ). For most people the year is split into four payment periods, with due dates of April 15, June 15, September 15, and January 15 of the following year. If a due date falls on a weekend or legal holiday, the payment is on time if it's made the next business day. If you don't pay enough by each due date, the IRS says you may be charged a penalty, even if you're due a refund when you file.

The pieces that make up the bill

Most sole proprietors in the trades are looking at three pieces:

• Self-employment tax (15.3%). This is Social Security and Medicare for people who work for themselves. The IRS says the rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare. It generally applies once your net earnings from self-employment are $400 or more. The Social Security part stops at a yearly earnings limit, and you figure the exact amount on Schedule SE.
• Federal income tax. Income tax works in layers called brackets. The IRS explains that when your income moves into a higher bracket, you pay the higher rate only on the part in that bracket, not on all of your income. Your real rate depends on your total income, deductions, credits, and filing status.
• State income tax, if your state has one. Rates and rules vary by state.

All three are figured on profit, not on what you billed. Profit is what customers paid you minus what you spent to run the business, like fuel, supplies, and equipment. That's why logging expenses matters as much as logging income: every expense you forget makes your set-aside look bigger than it needs to be.

The usual set-aside approach

A common shortcut is to save a fixed percentage of each payment's profit. Our quarterly tax set-aside calculator uses a simple version of this, and so does the tax set-aside card in the MiniCFO.io app. It adds three pieces:

1. About 20% for federal income tax. This is a rough middle-of-the-road rate we chose for the estimate, not an IRS figure. Your real rate may be lower or higher.
2. 15.3% for self-employment tax on your full net profit.
3. Your state's rate, whatever you enter (0% for states without an income tax).

A worked example

Example (made-up numbers): you have $10,000 of net profit this quarter, and you use a 5% state rate. The calculator works it out like this: $10,000 × 20% = $2,000 federal, plus $10,000 × 15.3% = $1,530 self-employment, plus $10,000 × 5% = $500 state. That's $4,030.00 to set aside, about 40.3% of profit. If that $10,000 were your profit for a full year instead, the calculator would show the same $4,030.00 total, or $1,007.50 per quarter.

You can check it yourself: put $10,000 and a 5% state rate into the calculator and it shows $4,030.00.

Why this is only an estimate

The shortcut is meant to be easy to use, not exact. It leaves out deductions, credits, other income, and your filing status. It also applies 15.3% to your full net profit, while the IRS figures self-employment tax on Schedule SE with adjustments and a yearly cap on the Social Security part, so the shortcut often comes out a little high. The IRS also lets you deduct the employer-equivalent portion of your self-employment tax when figuring adjusted gross income, which affects your income tax. Your actual tax may be higher or lower than the estimate, so talk to a tax professional about your situation.

Make it a habit

• Move money when you get paid, not at the end of the quarter. A separate savings account keeps it out of your everyday spending.
• Log expenses as they happen, so your profit, and your set-aside, stays accurate.
• Put the due dates on your calendar and check the IRS estimated tax page each year for the current dates.

How MiniCFO.io helps

In MiniCFO.io, the tax set-aside card updates as you log jobs and expenses from your phone, using the same simplified method as the calculator. The due-date card shows the next quarterly due date. It's an estimate, not tax advice, but it means you always have a rough number without doing the math on a napkin. You can also ask plain-English questions about your own numbers (AI Insights), like "What did I keep last month?"

This guide is general information and an estimate, not tax advice. Rules change and your situation matters, so check with a tax professional.

Sign up for MiniCFO.io It's $10 for the first month, then $35/month, no contracts.