Setting Aside Tax: Percentages That Actually Work for Freelancers

You just landed a solid client contract. The rate is good, the project is interesting, and for the first time in months, you can see real money coming in. Then it hits you: how much of this do I actually keep?

This is the question that keeps solo programmers up at night. You're not thinking about it in abstract terms—you're thinking about rent, equipment, and whether you can afford to take next month off without panic. The difference between what you invoice and what you get to spend is tax, and getting it wrong means either overpaying or facing a nasty surprise when filing day arrives.

The problem is that tax percentages aren't one-size-fits-all. Your location matters. Your income level matters. Whether you're running a side project or your full-time gig matters. And the guidance you find online often contradicts itself—one source says 25%, another says 30%, and a third says "it depends."

It does depend. But we can make it concrete.

This guide breaks down exactly how much you should set aside based on where you live and what you're earning. We'll cover the US, UK, and Australia—the three regions where most of our users operate. More importantly, we'll explain why the percentages vary, so you can adjust them as your situation changes.

Understanding Self-Employment Tax vs. Income Tax

Before we get to numbers, you need to understand what you're actually setting aside for. Most freelancers lump "taxes" into one bucket, but there are really two separate things happening.

Self-employment tax is what you pay into Social Security and Medicare (in the US) or equivalent national insurance schemes (in the UK and Australia). This is a flat percentage applied to your net business income, and it's mandatory if you're self-employed. In the US, the self-employment tax rate is 15.3%—12.4% for Social Security and 2.9% for Medicare—though you can deduct half of it on your tax return.

Income tax is what the government takes based on your total earnings and tax bracket. This varies wildly depending on where you live and how much you make. A freelancer earning $40,000 a year pays a different percentage than one earning $150,000.

When people say "set aside 30%," they're usually talking about the combined total of both. But the breakdown matters because it affects your planning.

For solo programmers running their own business, the question isn't just "what's my tax rate?"—it's "how much cash do I need to keep in reserve right now to cover what I'll owe in three months?" That's where quarterly estimated taxes come in, and that's where most freelancers get tripped up.

The US: Breaking Down by Income Bracket

In the United States, the amount you should set aside depends almost entirely on your tax bracket, which is determined by your net business income (revenue minus legitimate business expenses).

According to expert guidance from Collective, freelancers should consider strategies like the 20% pass-through deduction and even S corporation conversion to reduce self-employment taxes. But before you optimize, you need to know your baseline.

Single Filers: The Standard Brackets

If you're a single freelancer in the US, here's what you should set aside based on your projected annual net income:

$0–$11,000 (10% bracket): Set aside 20–22%. This is mostly self-employment tax; income tax is minimal. You're paying 15.3% self-employment tax plus roughly 10% income tax, minus the deduction for half of self-employment tax.

$11,001–$44,725 (12% bracket): Set aside 24–26%. Self-employment tax remains 15.3%, and you're now in the 12% income tax bracket. The combined hit is real, but not catastrophic.

$44,726–$95,375 (22% bracket): Set aside 30–32%. This is where most full-time solo developers land. You're paying 15.3% self-employment tax plus 22% income tax. This is the "set aside 30%" range you hear about.

$95,376–$182,100 (24% bracket): Set aside 34–36%. The self-employment tax stays flat, but your income tax bracket jumps. You're in the danger zone where under-setting-aside causes real financial pain.

$182,101+ (32% bracket and above): Set aside 38–42%. At this income level, you have enough money that you should be working with a tax professional anyway, but the rough guideline is 15.3% self-employment tax plus your marginal income tax rate (32%+).

These percentages assume you're taking the standard deduction and not claiming significant business expenses. If you're deducting home office, equipment, software subscriptions, or contractor payments, your actual tax liability drops, and you can set aside less.

The Self-Employment Tax Deduction

Here's a detail that matters: you can deduct half of your self-employment tax on your income tax return. This means the effective rate isn't quite as brutal as 15.3% + your bracket. According to TurboTax, deducting half of self-employment tax on Schedule 1 is one of the key deductions for freelancers. But this is a deduction you claim when you file—it doesn't reduce your quarterly estimated tax payments.

What this means in practice: set aside the full percentage we mentioned, pay quarterly estimated taxes, and then when you file your annual return, you'll get some of that back. It's not a reason to set aside less now.

Quarterly Estimated Tax Payments

In the US, if you expect to owe $1,000 or more in taxes, you're required to make quarterly estimated tax payments. These are due on April 15, June 15, September 15, and January 15.

The math is straightforward: take your projected annual net income, multiply by your set-aside percentage, divide by four, and pay that amount each quarter. If you earn $60,000 in a quarter and you're in the 30% bracket, you'd set aside $18,000 total for the year, or $4,500 per quarter.

Most freelancers get this wrong because they either:

1. Underestimate their income ("I'll probably make less than I think")
2. Forget that they need to pay quarterly, not annually
3. Set aside based on gross income instead of net income

The third mistake is actually common. If you invoice $100,000 but spend $30,000 on expenses, your net income is $70,000. You set aside tax on the $70,000, not the $100,000.

The United Kingdom: A Different System Entirely

The UK tax system works differently from the US, and the percentages reflect that.

Unlike the US, where you make quarterly estimated payments, UK freelancers file their taxes once a year through Self Assessment. You have until January 31 of the following tax year to file. This means you don't need to set aside money quarterly—but you do need to have it ready by January.

Income Tax and National Insurance

In the UK, you're dealing with two main taxes: income tax and National Insurance.

Income tax starts at 20% for the basic rate (for income between £12,571 and £50,270 in the 2024/25 tax year). There's a personal allowance of £12,571 where you pay nothing, then 20% up to £50,270, then 40% above that.

National Insurance is more complex. For the self-employed, you pay Class 2 National Insurance (a flat rate of roughly £163 per year) and Class 4 National Insurance (8% of profits between £11,908 and £50,270, then 10% above that).

Freelancers in the UK should understand these contributions, as they affect your total tax liability.

UK Set-Aside Percentages by Income

£0–£12,570 (Personal Allowance): Set aside 9–10% (Class 2 and Class 4 National Insurance only, no income tax).

£12,571–£50,270 (Basic Rate): Set aside 28–30% (20% income tax + 8% Class 4 National Insurance, plus Class 2).

£50,271–£125,140 (Higher Rate): Set aside 50–52% (40% income tax + 10% Class 4 National Insurance, plus Class 2).

£125,141+ (Additional Rate): Set aside 55%+ (45% income tax + 10% Class 4 National Insurance, plus Class 2).

These numbers are brutal at the higher end, but they're accurate. The UK tax system is more progressive than the US, meaning higher earners pay significantly more.

The Dividend Allowance

If you structure your freelance work as a limited company (which some UK developers do), you can take dividends instead of salary. Dividends have a lower tax rate—19% corporation tax plus 8.75% dividend tax—but this requires setting up a company, which adds complexity and accounting costs.

For solo programmers just starting out, sole trader status (where you set aside the percentages above) is simpler. But as you grow, the limited company structure might save you money. This is worth discussing with a UK accountant.

Australia: The PAYG System

Australia's tax system is different again, with a focus on Pay As You Go (PAYG) withholding and a tax year that runs from July 1 to June 30.

Income Tax and Medicare Levy

Australia has progressive income tax brackets:

$0–$18,200: No tax (tax-free threshold).

$18,201–$45,000: 19% + 2% Medicare Levy = 21%.

$45,001–$120,000: 32.5% + 2% Medicare Levy = 34.5%.

$120,001–$180,000: 37% + 2% Medicare Levy = 39%.

$180,001+: 45% + 2% Medicare Levy = 47%.

These are your marginal tax rates, but you also need to account for the Medicare Levy Surcharge if you don't have private health insurance (an extra 1–1.5% depending on income).

Australian Set-Aside Percentages

Here's what solo developers in Australia should set aside:

$0–$18,200: Set aside 2% (Medicare Levy only).

$18,201–$45,000: Set aside 21% (19% income tax + 2% Medicare Levy).

$45,001–$120,000: Set aside 34.5% (32.5% income tax + 2% Medicare Levy).

$120,001–$180,000: Set aside 39% (37% income tax + 2% Medicare Levy).

$180,001+: Set aside 47% (45% income tax + 2% Medicare Levy, plus any Medicare Levy Surcharge).

Unlike the US, Australia doesn't have self-employment tax as a separate line item. The Medicare Levy is your equivalent, and it's baked into these percentages.

PAYG Withholding and Quarterly Payments

Australia doesn't require quarterly estimated tax payments like the US does. Instead, you file your tax return once a year (by October 31 for most taxpayers) and settle your full tax liability then.

However, if you expect to owe more than $1,000, the Australian Tax Office (ATO) may require you to make installment payments. These are calculated based on your previous year's tax liability and are usually due quarterly.

The practical approach: set aside your percentage each month, and you'll have enough to cover your annual tax bill plus any installment payments.

How Much to Actually Set Aside: The Conservative Approach

All of these percentages assume you're earning consistent income throughout the year. In reality, freelance income is lumpy. You might earn $20,000 in one month and nothing the next.

This is where most freelancers go wrong. They set aside 30% of a big month's earnings, then spend it when a slow month hits. When tax time arrives, they're short.

The solution is to set aside your percentage immediately when you receive payment. Don't wait until the end of the quarter or the year. As soon as a client pays you, move your tax reserve into a separate account.

For US freelancers, this means:

1. Client pays you $10,000
2. You immediately move $3,000 (if you're in the 30% bracket) to a tax savings account
3. You have $7,000 left to cover business expenses, personal living costs, and reinvestment

This habit prevents the cash flow crisis that hits when taxes are due.

The Buffer Strategy

Here's an advanced move: set aside slightly more than the minimum. If you're in the 30% bracket, set aside 32% instead. The extra 2% creates a buffer for:

• Unexpected deductions you forgot to claim
• Quarterly estimated tax payments you miscalculated
• State or local taxes you didn't account for
• Currency exchange fees (if you're working internationally)

That buffer usually means you'll get a small refund or break even, rather than owing money. For solo programmers, breaking even on taxes is a win.

Business Expenses: The Percentage Reducer

Everything we've discussed so far assumes you're not claiming business expenses. But you probably have them.

Common deductible expenses for solo developers include:

• Software and tools: IDE licenses, cloud hosting, project management software, design tools
• Equipment: Laptop, monitor, keyboard, headphones (if used for business)
• Home office: Portion of rent or mortgage, utilities, internet
• Education: Courses, books, conference attendance
• Professional services: Accountant fees, legal fees
• Contractor payments: If you subcontract work to other developers
• Marketing and business development: Website hosting, networking events

According to the IRS, business expenses are outlined in Publication 535, which provides detailed guidance on what you can and cannot deduct.

Each dollar you spend on legitimate business expenses reduces your net income, which reduces your tax liability. If you earn $100,000 but spend $25,000 on business expenses, you only pay tax on $75,000.

This is why tracking expenses matters. Many solo programmers don't bother because they think the amounts are small. But if you're spending $200/month on software, that's $2,400/year—which could save you $720 in taxes (at 30%).

The takeaway: before you decide what percentage to set aside, add up your realistic business expenses. Subtract them from your projected income. Set aside your percentage based on the net number, not the gross.

Using Tools to Track and Plan

Setting aside the right percentage is only half the battle. You also need to actually know what you're earning and what you're spending.

For solo programmers, spreadsheets are the traditional approach—but they're error-prone and don't give you real-time visibility into your situation. By the time you realize you've underset-aside taxes, it's often too late.

This is where dedicated tools come in. A freelancer tax calculator can help you estimate taxes based on your income and location. But most tax calculators are static—they don't track your actual income and expenses throughout the year.

For solo developers who want to move beyond spreadsheets, Cashierr takes a different approach. Instead of just calculating taxes at the end of the year, it answers the two questions you actually care about: How much should I be making this quarter? and How's the business actually doing? By tracking your real income, expenses, and goals, it shows you exactly how much you should set aside based on your current trajectory—not just a generic percentage.

The benefit: you're not guessing. You're setting aside based on your actual numbers, updated continuously as you invoice clients and log expenses. If a big client leaves or you land a new contract, your set-aside percentage adjusts accordingly.

Regional Variations Within Countries

So far, we've covered federal taxes. But there's more.

US State and Local Taxes

In the United States, you also owe state income tax (in most states) and possibly local taxes depending on where you live.

State income tax ranges from 0% (in states like Texas, Florida, and Nevada) to over 13% (in California). If you live in a high-tax state, you need to add that to your set-aside percentage.

For example, if you're a single filer in California earning $60,000, you'd set aside:

• 30% for federal taxes
• ~9.3% for California state income tax
• Total: ~39%

This is a huge difference from the 30% federal baseline. If you live in a state with income tax, research your state's rate and add it to the percentages we discussed.

Some states also have gross receipts taxes or other business taxes, so check your specific state's requirements.

UK National Insurance Thresholds

The UK has several thresholds that affect your National Insurance:

• Class 2 threshold: If you earn less than £6,725, you don't pay Class 2 National Insurance (though you might want to pay it voluntarily to protect your benefit entitlements)
• Class 4 threshold: You only pay Class 4 National Insurance if you earn more than £11,908

These thresholds shift annually, so check the current year's rates.

Australian State Taxes

Australia doesn't have state income taxes like the US does, but some states have payroll taxes if you employ people. As a solo freelancer, you don't need to worry about this.

The Qualified Business Income Deduction (US Only)

If you're a US freelancer, there's one more deduction worth understanding: the Qualified Business Income (QBI) deduction, also known as the 20% pass-through deduction.

According to NerdWallet, the qualified business income deduction of up to 20% is available for side gigs. This means you can deduct up to 20% of your qualified business income from your taxable income, which effectively reduces your tax rate.

Here's how it works: if you earn $100,000 in net business income, you can deduct $20,000 of it. You only pay income tax on $80,000.

This is a significant benefit, but it's complex. There are income thresholds, and some types of business income don't qualify. Most solo developers qualify, but it's worth discussing with a tax professional.

The practical impact: if you were planning to set aside 30%, the QBI deduction might let you set aside 24% instead. But don't rely on this without confirming you qualify.

When to Adjust Your Set-Aside Percentage

Your situation changes. A client leaves. You land a big contract. You move to a different country. Your expenses increase. When this happens, your set-aside percentage might need to adjust.

Review and adjust your percentage:

• Quarterly: Check if your year-to-date income is tracking higher or lower than projected. If you're on track to earn more, increase your set-aside. If you're on track to earn less, you might decrease it (but be conservative).
• When you land or lose a major client: A client representing 30% of your income is a big deal. If they leave, your tax liability drops. If you land them, it increases.
• When your business expenses change significantly: If you suddenly start spending $500/month on equipment or contractor payments, your net income (and thus your tax liability) drops.
• When you move or your tax situation changes: If you move to a different country or state, your tax rate changes. Recalculate immediately.
• Annually: Before the tax year ends, do a projection. If you're on track to earn significantly more or less than you expected, adjust your remaining quarterly payments (in the US) or your monthly set-aside (in the UK and Australia).

The Real Cost of Getting It Wrong

Underestimating your tax liability isn't just about owing money later. There are penalties.

In the US, if you underpay your quarterly estimated taxes, the IRS charges interest and penalties. The penalty is usually around 0.5% per month of the underpaid amount. If you owe $10,000 and didn't pay it quarterly, you might owe an extra $500–$1,000 in penalties.

In the UK, underpaying your Self Assessment taxes can result in penalties of 5% of the unpaid tax if you pay within 12 months, 10% if you pay within 18 months, and 20% if you pay later.

In Australia, the ATO charges interest on late payments (currently around 10% per annum) plus penalties.

These aren't huge amounts, but they're avoidable. Setting aside the right percentage from the start prevents them entirely.

Bringing It Together: Your Action Plan

Here's what you need to do:

1. Determine your tax bracket. Based on your expected annual net income (after business expenses), figure out which bracket you fall into for your country and region.

1. Calculate your set-aside percentage. Use the brackets we provided, or consult guidance from professional sources like AIGA DC. If you're in a US state with income tax, add your state's rate.

1. Set up a separate tax savings account. Don't keep your tax money mixed with your operating account. Move your percentage immediately when you receive payment.

1. Track your income and expenses. Use a spreadsheet, accounting software, or a tool like Cashierr to monitor your actual numbers. This lets you adjust your set-aside percentage if your income trajectory changes.

1. Make quarterly or annual payments. In the US, make estimated tax payments on time. In the UK and Australia, set aside monthly so you have the full amount ready when taxes are due.

1. File your taxes on time. Don't procrastinate. Missing the deadline costs you penalties and interest.

1. Review and adjust annually. At the end of each tax year, look at what you actually earned and what you actually owed. Adjust your percentage for next year based on reality, not guesses.

The Bigger Picture: Revenue Planning Beyond Taxes

Setting aside taxes is important, but it's only one part of understanding your business finances. Solo programmers also need to know:

• How much revenue you need to hit your personal income goals
• Whether you're too dependent on a single client
• What your cash flow actually looks like month-to-month
• Whether you're undercharging compared to the market

These questions go beyond tax planning. They're about revenue planning—understanding not just how much you'll owe in taxes, but how much you should actually be making.

Cashierr approaches this differently than traditional accounting software. Instead of just tracking what happened, it uses AI agents to answer the forward-looking questions: What should my quarterly revenue target be? and How's the business actually doing against that target? This gives you visibility into gaps before they hurt, and it helps you make better decisions about pricing, client mix, and growth.

For solo programmers, revenue planning and tax planning are connected. When you know your revenue target, you can calculate exactly how much to set aside for taxes. When you track your actual revenue against that target, you can adjust your set-aside percentage in real time.

Final Thoughts

Taxes are boring, but getting them wrong is stressful. The good news: the percentages in this guide are based on real tax law, not guesses. Use them as your starting point, adjust for your specific situation (state taxes, business expenses, deductions), and set aside immediately when you get paid.

The solo programmers who stress least about taxes are the ones who set aside money consistently and track their actual numbers. You don't need to be a tax expert. You just need a system—whether that's a spreadsheet, accounting software, or a dedicated tool—that keeps you honest about what you're earning and what you owe.

Start there, and tax day becomes just another deadline, not a financial crisis.