How Much to Save for Taxes as a 1099 Contractor

Every 1099 contractor eventually asks the same question after their first big payment lands with zero tax withheld: how much of this is actually mine? The honest answer is "it depends," but it depends on a small, learnable set of factors — and once you know your percentage, saving for taxes becomes a habit instead of a guessing game.

The percentage method

The simplest system: every time you get paid, immediately transfer a fixed percentage of that payment into a separate savings account earmarked only for taxes. A commonly used starting point is 25-30% of net income for moderate earners, moving toward 30-35% for higher earners in higher brackets or high-tax states.

That range covers two things at once: self-employment tax (a flat 15.3% on 92.35% of net earnings, roughly 14.13% of net income in practice) and federal income tax (which scales with your bracket), plus a buffer for state income tax where applicable.

Calculate from net income, not gross

Set aside your percentage from net income — revenue minus legitimate business expenses — not gross revenue. Both self-employment tax and income tax are calculated on net profit. If you set aside a percentage of gross revenue without subtracting expenses, you'll consistently over-save, which isn't dangerous but does tie up cash you might need for the business itself.

Worked examples at different income levels

These are starting estimates, not a substitute for running your actual numbers — filing status, state of residence, deductions, and credits all shift the real figure up or down. Use our Self-Employment & Quarterly Tax Calculator for a number based on your specific income and filing status.

Where to keep the money while it waits

Open a separate, easily accessible savings account used only for tax money — sometimes nicknamed a "tax bucket." Keeping it visually and physically separate from spending money prevents the single most common mistake: treating a large deposit as available income and spending into what's actually owed to the IRS. A high-yield savings account lets that money earn a bit of interest while it sits, untouched, until the next quarterly due date.

Automate the habit

The freelancers who never get caught short at tax time almost always automate the transfer: the moment a client payment clears, a fixed percentage moves to the tax savings account before it can be spent elsewhere. Some business bank accounts (see our Business Banking guide) support automatic sub-account splitting that does this without any manual effort.

Frequently asked questions