How much should freelancers set aside for taxes?
Updated 2026-06-19
As an employee, tax vanishes from your payslip before you see it. As a freelancer, every payment lands in full — and some of it isn’t yours. Spend it all and tax season becomes a crisis. The fix is simple: set a slice of every invoice aside the moment it’s paid.
This is general guidance, not tax advice. Rates, thresholds and rules vary by country and by your income — confirm your number with an accountant or your tax authority.
A starting rule of thumb
A common starting point is to set aside 25–30% of your income for tax. That’s a buffer, not an exact bill — but it keeps most freelancers safe. Adjust it:
- Lower (≈ 20%) if your income is modest and you’re in a low bracket.
- Higher (30%+) if you’re a higher earner, or you also owe self-employment / social-security style contributions and sales tax (VAT/GST) on top.
- Remember sales tax (VAT/GST) isn’t yours at all — if you charge it, set aside 100% of what you collect to pass on.
Set aside the right base
Tax is generally on your profit, not your revenue — i.e. after deductible business expenses. So either:
- Set aside ~25–30% of profit (income minus expenses), or
- Set aside a slightly lower flat % of all income as a simpler, safe-ish approximation.
Pick one and be consistent. If you priced your work with the rate calculator, you already built a tax line into your rate — this is the other side of that coin: actually parking the money.
Keep it separate
The single most effective habit: move the tax slice into a separate account the day an invoice is paid. Out of your spending account, out of temptation. Some freelancers keep a second “tax” account and transfer the percentage on every payment.
Don’t forget the timing
- Note your tax deadlines and any payments on account / quarterly estimates — many systems want tax during the year, not just at the end (e.g. the UK’s Making Tax Digital is pushing self-employed people to quarterly digital reporting).
- Keep clean records: every invoice, receipt and expense. Your invoices, receipts and statements are part of that paper trail.
The bottom line
Set aside 25–30% by default, keep it in a separate account, treat any sales tax as 100% not-yours, and base it on profit. Get the number confirmed for your situation — but having a buffer from day one is what stops tax season from wrecking your cash flow.