How to Factor Taxes and Expenses into Your Freelance Rate
If you do not account for taxes, software, and health insurance in your hourly rate, you will end up with far less money than you planned. Here is how the math works.
Educational content only. This guide is published by the Blank Invoice Maker Editorial Team and maintained against primary-source references and in-product workflows. It is not legal, tax, or accounting advice. Read our editorial policy.
When you start freelancing, $50 an hour sounds like a lot of money—until tax season arrives and your subscriptions renew. Suddenly, that $50 feels closer to $25. To build a sustainable freelance business, your hourly rate must carry the weight of your taxes and expenses.
The silent killer: Self-Employment Tax
In many countries, employees split payroll taxes (like Social Security and Medicare in the US) with their employer. When you are self-employed, you are both the employer and the employee, which means you pay both halves. This self-employment tax is on top of your regular income tax. If you don't bake an extra 20-30% into your rate to cover this, you will be in trouble come April.
Listing your business expenses
Before you set a rate, you need a realistic view of your overhead. Common expenses include:
- Software: Adobe CC, web hosting, CRM tools.
- Hardware: Laptops, monitors, external drives (depreciated over time).
- Services: Accountant fees, legal advice, internet bills.
- Insurance: Health insurance, liability insurance.
Doing the math
To find your target gross revenue, you need to add your personal income goal, your estimated taxes, and your total business expenses. Then, divide that massive number by the hours you actually expect to bill (see why most freelancers undercharge for why this isn't 2080 hours).
Skip the spreadsheet
The math can get complicated, so we built a tool to do it for you. Use our True Hourly Rate Calculator. You enter your target take-home pay, your monthly expenses, and your tax bracket, and it spits out the exact hourly rate you need to charge to make the math work.
About this content
Published by Blank Invoice Maker
Blank Invoice Maker educational content is published by the Blank Invoice Maker Editorial Team. The team writes from hands-on product knowledge and checks each guide against current primary-source references and in-product workflows before publication.
Frequently Asked Questions
- How much should I set aside for taxes?
- A common rule of thumb is to set aside 25% to 30% of your gross income for taxes, though this varies significantly depending on your country and income bracket.
- Can I deduct my business expenses?
- Yes, legitimate business expenses lower your taxable income, which reduces your tax burden. However, you still need cash flow to pay for them in the first place, which is why your rate must cover them.