As an independent contractor, you should save roughly 25% to 30% of your net income for taxes, and the answer to how much you should save for taxes as an independent contractor climbs from there if you earn above $200,000 or live in a state with an income tax. That range covers both the 15.3% self-employment tax and a moderate federal income tax bracket. High earners often need to set aside 35% or more at the federal level alone.
What That Percentage Is Actually Covering
Two separate federal taxes come out of your contractor income, and both matter for the amount you save.
The first is self-employment tax. W-2 employees split Social Security and Medicare taxes with their employer; you pay the whole thing. The rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare.1Internal Revenue Service. Topic No. 554, Self-Employment Tax It applies to 92.35% of your net earnings, which puts the effective rate at about 14.1% of net income.
The Social Security piece has a ceiling. In 2026, only the first $184,500 of net self-employment earnings is subject to the 12.4% Social Security tax.2Social Security Administration. Contribution and Benefit Base Everything above that still owes the 2.9% Medicare portion. And an additional 0.9% Medicare tax kicks in on self-employment income over $200,000 for single filers or $250,000 filing jointly.3Internal Revenue Service. Topic No. 560, Additional Medicare Tax
The second tax is regular federal income tax, applied through the same progressive brackets everyone else uses. For 2026, single filers pay 10% up to $12,400, 12% to $50,400, 22% to $105,700, 24% to $201,775, 32% to $256,225, 35% to $640,600, and 37% above that. Married-filing-jointly thresholds roughly double.4Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 You only pay each rate on the income inside that bracket, not on your full income.
How to Calculate Your Own Number
The 25%–30% rule of thumb is fine for budgeting, but running the numbers on your own situation is what tells you whether to save at the low end, the high end, or something above the range. Take a single filer with $100,000 in net self-employment income and no other income.
Start with self-employment tax: $100,000 × 0.9235 × 0.153 = $14,130.
Half of that is deductible from gross income before you calculate income tax.5Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) So subtract $7,065, leaving $92,935 in adjusted gross income.
Subtract the 2026 standard deduction of $16,100 for a single filer.4Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Taxable income drops to $76,835.
Most sole proprietors then take the Qualified Business Income deduction, worth up to 20% of qualified business income.6Internal Revenue Service. Qualified Business Income Deduction On $100,000 net, that’s another $20,000 off, bringing taxable income to $56,835.
Apply the brackets to $56,835 and federal income tax comes to about $7,216. Add that to self-employment tax and total federal tax is $21,346, or 21.3% of gross net income. Add a 5% state income tax and you’re around 26%.
That’s why 25% to 30% works for a lot of contractors. It leaves a small cushion for state tax and calculation slop without forcing you to overshoot dramatically.
When You Should Save More Than 30%
Push the same math to $250,000 in net income and things change. You’re now firmly in the 24% federal bracket with some income taxed at 32%. The additional 0.9% Medicare tax has started applying to the amount over $200,000. QBI phase-outs may reduce or eliminate that 20% deduction if you’re in a specified service business like consulting, law, accounting, or health care. Once you clear those thresholds, federal alone can eat 35% or more of your net income, and state tax stacks on top of that.
State tax matters a lot at every income level. Eight states impose no income tax; others run above 13% at their top brackets. A flat 5% state tax adds roughly five points to your savings rate. A high-tax progressive state can add eight or more at higher incomes. Check your state before you settle on a number.
Deductions Cut What You Need to Save
Everything above is based on net income, not gross revenue. Every legitimate business expense you track lowers the income that gets taxed, which lowers the total dollar amount you need to have set aside.
The half-of-self-employment-tax deduction is automatic and doesn’t require itemizing.5Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
The QBI deduction removes up to 20% of qualified business income and was made permanent in 2025.6Internal Revenue Service. Qualified Business Income Deduction It phases out for specified service businesses above certain taxable-income thresholds. Below those thresholds, the full 20% is available regardless of your profession.
Ordinary business expenses go on Schedule C. Common ones:
- Home office, under the simplified method at $5 per square foot up to 300 square feet ($1,500 max), or actual expenses if that’s larger.7Internal Revenue Service. Simplified Option for Home Office Deduction
- Vehicle expenses at the 2026 standard mileage rate of 72.5 cents per business mile, or actual costs.8Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents Per Mile
- Supplies, software, and subscriptions used for client work.
- Professional development directly related to your work.
Keep receipts. The IRS can disallow deductions you can’t substantiate, which means paying tax on income you already spent on real business costs.
If you pay for your own health insurance and aren’t eligible through a spouse’s employer plan, self-employed health insurance premiums are deductible above the line for you, your spouse, dependents, and children under 27.9Internal Revenue Service. Instructions for Form 7206 You can’t deduct more than your net business profit, and you can’t claim the deduction for any month you were eligible to participate in an employer-subsidized plan.
Retirement contributions also reduce your taxable income in the year you make them, and self-employed plans (SEP IRA, Solo 401(k), SIMPLE IRA) have generous limits that make them one of the strongest tools for cutting the bill.10Internal Revenue Service. Self-Employed Individuals – Calculating Your Own Retirement Plan Contribution and Deduction
Set the Money Aside, Then Send It in Quarterly
Saving the right percentage is only half the job. The IRS expects contractors to pay as they earn. If you’ll owe $1,000 or more in federal tax for the year after any withholding and credits, you’re required to make quarterly estimated tax payments.11Internal Revenue Service. Estimated Taxes
The 2026 deadlines:
- April 15, for income earned January through March
- June 15, for April through May
- September 15, for June through August
- January 15, 2027, for September through December
The periods aren’t equal. The second one is only two months, and dividing your annual estimate by four leads to underpaying it. If a due date falls on a weekend or holiday, it moves to the next business day.12Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
Pay through IRS Direct Pay straight from a bank account,13Internal Revenue Service. Direct Pay With Bank Account the Electronic Federal Tax Payment System,14Internal Revenue Service. EFTPS – The Electronic Federal Tax Payment System or by mailing a check with Form 1040-ES. If your state has an income tax, you’ll owe separate state estimated payments too. Most state deadlines mirror the federal schedule.
The Safe Harbor That Guarantees No Penalty
Underpay during the year and the IRS charges a penalty on the shortfall at an interest rate that changes quarterly. It was 7% in early 2026 and 6% in the second quarter, compounded daily.15Internal Revenue Service. Quarterly Interest Rates
You avoid the penalty entirely by hitting one of two safe harbors:12Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
- Pay at least 90% of what you’ll owe for the current year, or
- Pay at least 100% of last year’s total tax (110% if your prior-year AGI was above $150,000, or $75,000 if married filing separately).
The prior-year rule is the easier target, especially in your first few years when income is unpredictable. You already know last year’s total tax; divide by four, pay that each quarter, and you’re covered regardless of what this year does. The tradeoff is that if income drops, you’ll overpay and wait for the refund.
If your income is seasonal or lumpy, the annualized income installment method on Form 2210 Schedule AI lets you size each quarterly payment to the income actually earned in that quarter, so a strong Q4 doesn’t create a retroactive penalty for a slow Q2.
Practically, the simplest system is a separate savings account. Every time a client pays you, move your target percentage into that account immediately and don’t touch it. When quarterly deadlines come around, the money is already there. If you finish the year with extra sitting in the account, either your deductions were better than you planned for or you saved a little too much — both are good problems.