How Much Should You Set Aside for Taxes When Self-Employed?

For U.S. readers: This article discusses U.S. rules and financial products. State rules and individual eligibility may differ.

Quick answer

There is no reliable universal percentage. A sound federal estimate combines expected income tax, self-employment tax, and any other federal taxes, then subtracts expected withholding and refundable credits. State and local obligations are calculated separately. For 2026, the IRS says estimated tax generally applies when you expect to owe at least $1,000 after withholding and credits and those prepayments will be below the applicable threshold (IRS Publication 505 for 2026).

A percentage such as 25% or 30% can be a temporary cash-management placeholder, but it is not an IRS rule and may be too high or too low. Use the 2026 Form 1040-ES worksheet or tax software to turn your own income, deductions, credits, filing status, and prior-year tax into a dollar estimate.

Finelo provides financial education, not tax, financial, or investment advice. Federal rules change, state rules differ, and individual circumstances can materially change the result.

What your set-aside may need to cover

Federal income tax

Federal income tax uses progressive brackets and depends on the taxpayer's entire return, not just business profit. Wages, investment income, a spouse's income, filing status, deductions, and credits can all change the amount.

Self-employment tax

Self-employment tax generally funds Social Security and Medicare for people with net earnings from self-employment. Schedule SE is the official calculation form (IRS Schedule SE information). Do not simply multiply gross receipts by the headline tax rate: the calculation starts from net profit, applies the Schedule SE net-earnings adjustment, coordinates the Social Security wage base with wages, and may include Additional Medicare Tax in higher-income cases.

State and local tax

State treatment varies. Depending on location and business structure, the total may include individual income tax, franchise or gross-receipts tax, local income tax, or other business charges. A federal worksheet does not cover these amounts.

Other taxes and credits

The estimated-tax worksheet can also reflect items such as alternative minimum tax, net investment income tax, household employment tax, refundable credits, and other amounts reported on an individual return. That is another reason a flat percentage can miss the result.

A practical calculation method for 2026

Use this workflow for planning; use the official worksheet for the filed payment amount.

1. Project full-year gross business income. Include invoices expected to be paid during the tax year under the accounting method you use.
2. Subtract ordinary and necessary business expenses. Use reasonable estimates supported by current records; do not count personal spending as a business expense.
3. Estimate self-employment tax. Complete the Schedule SE portion of the 2026 Form 1040-ES worksheet or use tax software.
4. Estimate adjusted gross income and taxable income. Include income outside the business, expected adjustments, the applicable standard or itemized deduction, and qualified business income treatment if applicable.
5. Estimate credits and other taxes. Include only credits you reasonably expect to qualify for.
6. Subtract expected withholding. Withholding from a job or a spouse's job counts toward federal prepayments.
7. Compare the current-year and prior-year methods. Publication 505 explains the required annual payment and the special rule for higher-income taxpayers.
8. Add state and local estimates separately. Use the relevant state tax agency's current instructions.
9. Divide the amount into cash-flow transfers. Moving a portion of each payment into a separate savings account can help, but the official payment schedule—not the savings transfer schedule—controls tax timing.

The federal estimated-tax threshold and safe-harbor rules

For most individuals in 2026, estimated tax is generally required when both conditions apply:

• expected tax due after withholding and refundable credits is at least $1,000; and
• withholding and refundable credits are expected to be less than the smaller of 90% of the tax shown on the 2026 return or 100% of the tax shown on the 2025 return.

The prior-year percentage generally becomes 110% when 2025 adjusted gross income exceeded $150,000, or $75,000 for a 2026 return filed as married filing separately. Farmers, fishers, nonresident aliens, estates, and trusts have additional or different rules. These are penalty-planning thresholds, not estimates of the final tax bill. The full rules and exceptions are in IRS Publication 505.

If you had no 2025 tax liability, were a U.S. citizen or resident alien for the entire year, and the 2025 return covered 12 months, Publication 505 says estimated tax is not required for 2026. State rules may differ.

Equal installments versus irregular income

The familiar “quarterly” shorthand can be misleading. Federal estimated-tax due dates do not divide the calendar into four equal three-month quarters, and a payment can be late even if the annual total is ultimately enough.

If income arrives unevenly—for example, most revenue is earned late in the year—the annualized income installment method may better match payments to when income was earned. It requires additional calculations and generally involves Form 2210 Schedule AI. Withholding is treated differently from estimated payments for timing purposes, so someone who also has wages may be able to adjust Form W-4 instead. Publication 505 explains both approaches.