How much should I set aside for my taxes?

In general, we recommend setting aside 25-30% of you 1099 income for taxes. Try our calculator to get a better estimate of what you’ll owe at the end of the year.

Your details

Student tuition payments are amounts paid for education expenses, such as tuition and required fees, to attend an eligible educational institution. These payments can qualify you for education-related tax credits or deductions, like the American Opportunity Credit or Lifetime Learning Credit, which can reduce your overall tax liability.

Mortgage interest is the interest you pay on a loan secured by your home, which can include a mortgage on your primary residence or a second home. This interest is often deductible on your federal income tax return, potentially lowering your taxable income if you itemize deductions.

Traditional IRA contributions are amounts you can contribute to a retirement account, which may be tax-deductible depending on your income and whether you have a retirement plan at work. The contributions grow tax-deferred, meaning you won't pay taxes on the earnings until you withdraw the money during retirement.

Quarterly tax payments are estimated tax payments made four times a year to cover income that isn't subject to withholding, such as self-employment income, interest, dividends, and rental income. These payments help you avoid underpayment penalties and ensure you're paying taxes throughout the year as you earn income.

Keeper assumes a standard withholding by your employer's payroll provider. If you know the exact withholding, you can enter it here for an even more accurate tax refund estimate!

Your tax refund estimate

Federal tax bill
$1,509
CA State tax bill
$411
Adjusted gross income

This is your total income for the year minus certain adjustments, such as contributions to retirement accounts, student loan interest, and self-employment taxes. your total income for the year minus certain adjustments, such as contributions to retirement accounts, student loan interest, and self-employment taxes.

$79,647
Standard deduction

The standard deduction is a fixed dollar amount that reduces the income you're taxed on, simplifying the tax filing process. It varies based on your filing status (e.g., single, married filing jointly) and is adjusted annually for inflation.

-$13,850
Business deductions

Itemized business deductions are specific expenses that you can deduct from your 1099 / business income to reduce your taxable income. These can include costs like office supplies, travel expenses, advertising, and professional services, as long as they are ordinary and necessary for your business.

???
Other deductions

Common deductions include state and local taxes, mortgage interest, charitable contributions, student loan interest, retirement contributions, and educational expenses. This line also includes the Qualified Business Income (QBI) deduction, which allows a 20% deduction on qualified 1099 / business income.

−$1,000
Taxable income

Taxable income is the portion of your income that is subject to federal income tax after accounting for deductions and exemptions. It includes wages, salaries, bonuses, and other forms of income, minus any allowable deductions like the standard deduction or itemized deductions.

$64,797
Credits

The most common tax credits people can claim include the Earned Income Tax Credit (EITC), Child Tax Credit, American Opportunity Credit, Lifetime Learning Credit, and the Premium Tax Credit. These credits can reduce the amount of tax you owe or increase your refund.

−$0
Gross taxes

Gross taxes refer to the total amount of tax liability before accounting for any tax credits or payments made throughout the year. It represents the initial calculation of taxes owed based on your taxable income and applicable tax rates.

$16,007
Taxes withheld

This refers to the amount of federal and state taxes that are taken out of your paycheck by your employer throughout the year. Keeper assumes a standard withholding by default. If you know your employer's exact withholding, you can input it under "Add advanced info".

−$14,498
Quarterly tax payments

Quarterly tax payments are estimated tax payments made four times a year to cover income that isn't subject to withholding, such as 1099 / business income, interest, dividends, and rental income. These payments help you avoid underpayment penalties and ensure you're paying taxes throughout the year as you earn income.

−$0
Estimated federal tax bill
$1,509
Estimated CA tax bill
$411

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* actual average deductions claimed by Keeper customers with income profiles similar to yours.

by
Sarah York, EA
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Reviewed by
a tax professional
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Reviewed by
a tax professional

This content has been reviewed by an Enrolled Agent (EA) with the IRS — the highest credential awarded by the agency. Enrolled Agents are empowered to represent all taxpayers before the IRS, on all types of tax-related matters. Accountants who earn this certification have passed a comprehensive three-part exam on individual and business tax returns. To maintain EA status, they must stay up to date in the field by completing 72 hours of continuing education every three years.

It’s hard enough to save money for your own financial goals, let alone for taxes. But anyone who’s been on the self-employment merry-go-round will tell you that planning for your tax bill is essential. 

As a rule of thumb, I usually recommend self-employed people save 20-30% of their earnings for Uncle Sam. This is about how much it takes to cover income and self-employment taxes. 

Who has to pay self-employment taxes?

If your earnings exceed $400 from self-employment income — whether that’s gig work, freelance work, work for your small business, or contract work — you should plan to pay self-employment tax. 

Even if your self-employment is a side hustle to supplement your full-time job, you still have to pay self-employment taxes.

The rules apply regardless of how old you are — and even if you’re receiving Social Security or are on Medicare.

Do self-employed people pay more in taxes?

The short answer: yes. The long answer: not really, but it feels like it. Self-employed people have to pay more in Social Security and Medicare taxes, but they’re also allowed to claim business write-offs which more than makes up for it. The lack of tax withholding, though, will make your tax bill seem really high.

You can read more about this unique tax situation below, or just skip ahead to learn what taxes to budget for.

Self-employed people pay more in FICA taxes

Technically, self-employed people pay slightly more in Social Security and Medicare taxes than traditional W-2 workers. This is because they have to pay the employer portion of the tax in addition to their own. The extra burden adds to their overall tax rate by 7.65% —  no small amount. 

Self-employed people get to claim business write-offs

On the flip side, self-employed individuals have a number of tax-saving options that aren’t available to W-2 workers. Namely, business write-offs.

When those are factored in, self-employed taxpayers often pay less overall than their W-2 counterparts. (The problem is, not enough self-employed people know how to take advantage of these write-offs. But more on that later!) 

Self-employed people don’t get tax withholding

If you’re a freelancer, gig worker, small business owner, or independent contractor, your taxes will feel higher because of the sticker shock. Traditional W-2 workers have their Social Security, Medicare, and income taxes withheld from their paychecks throughout the year. When it’s time to file, most, if not all of their tax has already been paid, and they’ll often get a nice refund from the IRS. 

Self-employed workers, on the other hand, do not have an employer to withhold taxes on their behalf. Many are shocked when they file their taxes and realize how much they owe.

If all you’ve known is the W-2 life, it might feel like you’re paying more in taxes. But the reality is, you’re just paying it all at once. 

What taxes do self-employed people have to worry about? 

There are two types of tax that self-employed people generally have to pay when they file their taxes: income and self-employment tax. 

What will income tax cost you? 

Almost every type of income is subject to income tax. This includes things like: 

  • Wages
  • Business income
  • Interest
  • Rent
  • ‍Pensions

Most self-employed individuals end up in the 10-22% income tax range, with most people having an average (or “effective”) tax rate of around 14%. (You can read more about how these tax ranges work by heading over to our income tax calculator.)

The tax breaks that will lower your income taxes

Here’s why the two rates don’t match up: you won’t get taxed on the full $48,000 of income. A few things are subtracted before landing on your “taxable income.” Namely: 

Once you remove these amounts, your taxable income will be around $22,000. Your new top tax rate is 12%.


If you set aside around 5% of your gross income ($48,000), that should be enough to cover your income tax liability. Though, of course, your tax burden doesn’t end there. 

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How much will self-employment tax cost you? 

Self-employment tax goes to two separate government programs: Social Security and Medicare. All working people pay into these funds. For W-2 individuals, these taxes are known as “FICA taxes.” (They’re automatically deducted by their employer from their paychecks — more on that later!)

For everyone else, these taxes are collectively called “self-employment taxes,” and they have a combined rate of 15.3%. The tax is divided into two parts: 12.4% goes to Social Security, and 2.9% goes to Medicare. Unlike income tax, self-employment taxes only get applied to your business income. Meaning, income that’s reported on a Form 1099. You can read more about how this tax works in our beginner’s guide to self-employment tax.

Why not all business income is subject to self-employment tax

Only your net business income is actually subject to self-employment tax. “Net business income” means your earnings minus any business write-offs you might have. This could be anything from inventory you buy for your business to your cell phone bill.

The IRS lets you subtract all of those costs from your self-employment income and will only tax you on the remainder. This is why business write-offs are so important! It’s the most effective way to lower your tax bill.  

To get the most accurate tax projection, use your net monthly self employment income in the calculator above. If you use your gross income, you risk overpaying in taxes.

How to find write-offs with Keeper

Not sure what write-offs you can count? Give Keeper a try. Our mission is to help self-employed workers find and claim all of their business write-offs.

Our app connects to your bank and credit card accounts and scans for every eligible business expense, based on what you do for work. From there, the deductions can be easily imported into our tax filing system (or exported for your tax preparer if you don’t want to do your own business taxes). 

How to budget for self-employment taxes

The United States operates on a “pay-as-you-go” tax system. Meaning, taxes are due when the money is earned, not when your tax return is filed.

If you expect to owe more than $1,000 in taxes, you should probably be making estimated tax payments. Not making payments throughout the year could result in penalties and interest when you finally file your tax return. 

But making periodic tax payments is easier said than done. Between rent, groceries, and the occasional Starbucks latte, there never seems to be money left over.

If you relate to that, you’ve come to the right place. We’ve compiled some tried and true methods to effectively manage yourself — and some common financial pitfalls to avoid. 

✓ Increase your billing

In many cases, self-employed individuals start their careers working W-2 jobs. They know what a competitive hourly rate is in that context, but when they strike out on their own, they often feel lost.

What frequently happens: They forget to factor in things like taxes and end up undercharging.

If you’re looking for a sign to increase your fees, here it is. Your billing should always be marked up to cover self-employment taxes. So the next time you send out an invoice, make sure you’re not underselling yourself.

✓ Find a payment schedule that works for you

Many people are surprised to learn this, but just because your estimated taxes are due quarterly doesn’t mean they have to be paid on the due date. You can make estimated payments as often as you need to to say on top of things.

Some people prefer making monthly or biweekly payments, so that they don’t have to sit on their tax money for too long. A more regular payment schedule also helps keep the process fresh —you won’t have to relearn it every four months. 

✓ Set up auto transfers

Much like the gym membership you signed up for and forgot about, setting up auto transfers is a sneaky way to steal money from yourself.

Most banks will let you automatically move funds from one account to another. By using this approach, you can save for your tax bill without having to think about it. 

✓ Use a different bank

Sometimes, even your savings account is too accessible. After all, transferring funds back and forth takes a mere click of a button.

Try setting up an account at a separate bank — not the one you go to normally.  That can add another layer of difficulty in accessing the funds. 

✘ Don’t download your bank’s mobile app

If you use another bank just for taxes, resist the temptation to download the mobile app. It’s convenient to be able to view all your balances on your phone, but it also increases the likelihood that you’ll dip into those funds.

The best approach here: Keep it out of sight and out of mind until it’s time to make your tax payments. 

✘ Don’t activate the debit card

The goal with all of these strategies is to limit your access to your tax money. To that end, it’s best to not even activate the new debit card or store it in your wallet.

Think of it this way: The second the money gets transferred into your tax account, it no longer belongs to you — it belongs to Uncle Sam. Cutting off access points will remove the temptation to spend what’s not yours. 

✘ Don’t connect your payment apps

Similarly, avoid connecting your new account to your regular payment apps like Apple Pay, Venmo, or PayPal. Not only does that make the funds more accessible, it also increases the likelihood that you’ll use them by mistake.

Some of you probably read these suggestions and thought, “That seems like overkill.” And honestly, I agree. But sometimes overkill is exactly what the doctor ordered.

The fact is, we live in a spend economy. Everywhere we look, we’re being bombarded by ads and promotions, whether we’re browsing TikTok or just walking down the street.It’s not easy to admit it, but, the truth is, most of us need some hand-holding when it comes to budgeting.

In my experience, the business owners who do the best are the ones who learn to protect themselves… from themselves.

FAQ

What is self-employment tax?

Self-employment tax, or FICA tax, has two parts: Social Security tax (12.4%) and Medicare tax (2.9%). If you're a freelancer or sole proprietor, you'll pay self-employment tax.

Why is self-employment tax so high?

The self-employment tax rate is 15.3%, double the amount W-2 workers have to pay. This is because W-2 workers effectively split the cost of this tax with their employer, meaning they only have to pay 7.65%.

Who qualifies for a QBI deduction?

The qualified business income deduction, or QBI deduction, is a tax break that lets business owners with pass-through income write off up to 20% of their taxable income. A pass-through business is one that’s not subject to corporate income tax. Instead, all of its income “passes through” to the owner, who reports it on their personal tax return.

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Sarah York, EA

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Sarah is an Enrolled Agent with the IRS and a former staff writer at Keeper. In 2022, she was named one of CPA Practice Advisor’s 20 Under 40 Top Influencers in the field of accounting. Her work has been featured in Business Insider, Money Under 30, Best Life, GOBankingRates, and Shopify. Sarah has spent nearly a decade in public accounting and has extensive experience offering strategic tax planning at the state and federal level. Her clients have come from a wide range of industries, including oil and gas, manufacturing, real estate, wholesale and retail, finance, and ecommerce, and she has handled tax returns for C corps, S corps, partnerships, nonprofits, and sole proprietorships. In her spare time, she is a devoted cat mom and enjoys hiking, painting, and overwatering her houseplants.