Self-employed income has no withholding, so set aside a share of each payment for taxes. Multiply income by an effective tax rate — and divide the annual estimate into quarterly payments.
The example
$5,000 payment at 30%.
| A | B | |
|---|---|---|
| 1 | Item | Value |
| 2 | Payment | 5000 |
| 3 | × 30% | → $1,500 |
The formula
The formula:
How it works
How it works:
- Pick an effective tax rate covering income tax plus self-employment tax (often ~25–35%).
- Multiply each payment received by that rate and move it to a separate tax account.
- For quarterly estimates, divide the projected annual tax by 4:
annual_tax / 4. - Base estimates on net (after-expense) income, not gross revenue.
Set aside per payment, not per quarter. Waiting until the quarterly deadline to find the cash is how freelancers get caught short. Moving the tax slice the moment each payment lands — =ROUND(income * rate, 2) into a dedicated account — means the quarterly payment is always already funded. Confirm the actual rate with a tax professional.
Try it: interactive demo
Payment and effective tax rate.
Variations
Quarterly payment
Annual ÷ 4:
On net income
After expenses:
Running tax saved
Year to date:
Pitfalls & errors
Per payment. Move the tax slice as money arrives, not at deadline.
Net, not gross. Base the rate on income after deductible expenses.
Confirm the rate. Effective rates vary — verify with a tax pro.
Practice workbook
Frequently asked questions
How do I calculate quarterly tax set-aside in Excel?
How do I size quarterly payments?
Gross or net income for the estimate?
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