How Much to Set Aside for Taxes When Self-Employed (2026 Worked Example)
· updated · 9 min read
If you're self-employed, a common habit is to set aside 25% to 30% of your profit for taxes, but how much to set aside for taxes when self-employed really depends on your profit, your state and your deductions. For a single owner with $48,000 of profit in 2026, federal self-employment tax and income tax together come to about 19% of profit (worked out step by step below), so saving 25% leaves room for state tax and a cushion. Here's how to find your own number, save it from every payment and pay it on time.
This is general information, not tax advice. Tax rules depend on your situation and vary by state, so confirm your numbers with a tax professional or the official IRS pages linked below.
Why self-employed owners need a tax set-aside
An employer withholds tax from each paycheck. When you run your own cleaning, lawn care or handyman business, nobody does, so you pay two federal taxes yourself:
Self-employment tax. This is Social Security and Medicare for people who work for themselves. The IRS rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare. It's figured on 92.35% of your net earnings, and you generally owe it once net earnings reach $400 (IRS Topic 554). The Social Security part stops at a yearly cap: $184,500 of earnings for 2026 and $192,300 for 2027 (Social Security Administration).
Federal income tax. Charged on your taxable income at the 2026 rates (10%, 12%, 22% and up) after deductions.
Most states add their own income tax, and some cities do too. Rates and rules differ a lot, so check your state's tax agency (USA.gov's state taxes guide links to a directory of state tax agencies).
The key word in every rule of thumb is profit: what customers paid you minus your business expenses. Not the total that hits your bank account.
The 4-step way to find your own percentage
You need your profit so far, last year's return if you had one, and the 2026 Form 1040-ES, which has the 2026 rate schedules and a worksheet.
Estimate your profit for the year. Money in minus business expenses so far, plus a projection for the rest of the year. Seasonal trades should project month by month.
Figure self-employment tax. Profit × 92.35% × 15.3% (while your earnings are under the Social Security cap).
Figure income tax. Subtract half of your self-employment tax, your standard deduction ($16,100 for a single filer in 2026) and, if you qualify, the qualified business income (QBI) deduction. Then apply the rate schedule for your filing status.
Add the two, add an estimate for your state, and divide by profit. That's your percentage. Round it up for a cushion.
Worked example: a solo house cleaner in 2026
Here's the math for a fictional solo cleaner (an illustration, not a real customer). Assumptions: single filer, no other income, no dependents, standard deduction, no retirement or health insurance deductions, and well under every income limit that changes the rules. Steps 1 to 4 are federal only.
Step 1: Profit. Customers paid $60,000 in 2026. Supplies, mileage, phone, insurance and software came to $12,000. Profit: $60,000 − $12,000 = $48,000.
Step 2: Self-employment tax.
$48,000 × 92.35% = $44,328.00
$44,328.00 × 15.3% = $6,782.18
Step 3: Income tax.
Half of the self-employment tax is deductible: $6,782.18 ÷ 2 = $3,391.09
Adjusted gross income: $48,000 − $3,391.09 = $44,608.91
Minus the $16,100 standard deduction: $28,508.91
QBI deduction: the IRS explains it's up to 20% of qualified business income, capped at 20% of taxable income (figured before this deduction, minus net capital gain). Qualified business income here is profit minus the deductible half of self-employment tax, so 20% of $44,608.91 = $8,921.78. The cap is 20% of $28,508.91 = $5,701.78. The smaller amount wins: $5,701.78.
Taxable income: $28,508.91 − $5,701.78 = $22,807.13
Tax from the 2026 single schedule: $1,240 + 12% × ($22,807.13 − $12,400) = $1,240 + $1,248.86 = $2,488.86
Step 4: Federal total. $6,782.18 + $2,488.86 = $9,271.04, which is 19.3% of profit.
Notice that self-employment tax is about 73% of the federal bill here. That's why "I'm only in the 12% bracket" is a risky way to think about it.
Step 5: State and cushion. Suppose this cleaner's state income tax comes to about $2,000 (an illustration; yours could be zero or more). The total is $11,271.04, or 23.5% of profit. Rounding up to 25% of profit means saving $12,000 over the year, with a little cushion.
How the percentage moves with profit
Same assumptions, federal only:
$30,000 profit: $4,238.87 self-employment tax + $942.45 income tax = $5,181.32 (17.3%)
$48,000 profit: $6,782.18 + $2,488.86 = $9,271.04 (19.3%)
$85,000 profit: $12,010.12 + $5,789.91 = $17,800.03 (20.9%)
The share climbs as profit grows because the standard deduction covers a smaller part of your income. Married filers, parents, owners with a W-2 job on the side, and anyone above the 0.9% Additional Medicare Tax threshold ($200,000 for single filers, per the IRS) will get different results, so run your own numbers.
Turn the percentage into a per-payment habit
"25% of profit" is hard to apply on a Tuesday when a customer pays you. Convert it into a share of money in:
The cleaner's profit is 80% of what customers pay ($48,000 ÷ $60,000).
25% of profit = 25% × 80% = 20% of every payment.
A $160 clean means $32 to the tax account. A $1,200 week means $240.
Then make it routine:
Open a separate savings account just for taxes, ideally at your business bank so transfers are instant.
Move your share once a week, on the same day, from everything deposited that week.
Don't borrow from it, not for equipment and not for a slow month.
Re-check your percentage every quarter. If expenses jumped (a new mower, a van repair), your profit share fell. If you raised prices, it went up.
If you want a ready-made way to track this, the Home Service Bookkeeping Spreadsheet has a Tax Set-Aside tab: you log money in, money out and miles, and it applies the share you choose to each IRS period's profit, next to the due dates. It organizes your records; it doesn't calculate your tax bill.
Paying it: estimated tax due dates for 2026
You generally have to make estimated payments if you expect to owe at least $1,000 for the year after withholding and refundable credits (Form 1040-ES). The IRS payment periods for 2026 are:
Income from January 1 to March 31: due April 15, 2026
April 1 to May 31: due June 15, 2026
June 1 to August 31: due September 15, 2026
September 1 to December 31: due January 15, 2027
If a date falls on a weekend or legal holiday, the next business day counts. You don't have to make the January 15 payment if you file your 2026 return by February 1, 2027 and pay the full balance with it.
You can pay with IRS Direct Pay from your bank account at no cost at IRS.gov/Payments, through your IRS Online Account, or through EFTPS. States that tax income usually have their own estimated tax rules and dates, so check your state's agency too.
How much to send each time
The Form 1040-ES worksheet works out a "required annual payment," which is the smaller of:
90% of your 2026 tax, or
100% of the tax shown on your 2025 return (110% if your 2025 adjusted gross income was over $150,000).
You then pay one quarter of it on each due date, even though the four periods aren't the same length.
Example, continued. Say the cleaner's 2025 return showed $7,600 of total tax (fictional). 90% of this year's estimated $9,271.04 is $8,343.94. The smaller figure is $7,600, so she pays $7,600 ÷ 4 = $1,900 on each of the four dates. Paid on time, that generally keeps her clear of the underpayment penalty, but she still owes the rest: $9,271.04 − $7,600 = $1,671.04 due with her return by April 15, 2027.
Her tax account at the end: $12,000 saved − $7,600 federal estimates − $1,671.04 April balance − $2,000 state = $728.96 left as a cushion.
The safe harbor protects you from the penalty; the set-aside protects you from the April bill.
If your income is seasonal, this is your first year, or you also have a job
Seasonal trades like lawn care, pressure washing, Christmas lights and snow removal earn unevenly. The IRS annualized income installment method (Form 2210, Schedule AI) lets your required payments follow when the income actually came in, which can lower or remove a penalty for earlier periods (Form 2210 instructions). Either way, keep moving your share every week in busy months.
First year in business? The Form 2210 instructions also list an exception to the penalty if you had no tax liability for the prior full 12-month year and were a U.S. citizen or resident for the whole year. The tax is still due, so the whole bill can land in April. Save anyway.
Side business plus a W-2 job? The IRS notes that increasing withholding at your job can be a convenient way to cover self-employment income: you give your employer a new Form W-4 (IRS pay-as-you-go guide).
Common mistakes
Mixing up profit and money in. A rule based on profit applied to deposits (or the other way around) gives the wrong number. Convert it once, as above.
Counting only the income tax bracket and forgetting the 15.3% self-employment tax.
Treating the safe-harbor payments as your whole bill. They prevent a penalty; they don't settle what you owe.
Forgetting state estimated payments, which run on your state's rules.
Using last year's percentage after a big change, such as a price increase, a new truck or a first hire. Hiring adds employer payroll taxes on top of your own (see how to hire your first employee).
Underpricing. If saving 20% of every payment feels impossible, your prices may not cover taxes at all. Our house cleaning pricing guide shows how to build a price from your real costs.
FAQ
Is 30% enough to set aside for taxes when self-employed?
For many solo owners with modest profit, 25% to 30% of profit covers federal and state tax with a cushion; in the example, federal tax was 19.3%. With high profit, a high-tax state or other household income, it may not be enough, so run the four steps.
Should I set aside a percentage of revenue or of profit?
Rules of thumb like 25% are usually a share of profit. To apply one to each payment, multiply by your profit margin: 25% of profit at an 80% margin is 20% of each payment.
What happens if I miss the January 15, 2027 payment?
You may owe an underpayment penalty. The IRS figures it from the amount you underpaid, how long it was underpaid and its quarterly underpayment interest rates, so paying as soon as you can keeps it smaller. Filing your 2026 return and paying in full by February 1, 2027 also removes the need for the January payment.
Does forming an LLC change how much I set aside?
Usually not by itself. By default, the IRS treats a single-member LLC as disregarded from its owner: you report on Schedule C and pay self-employment tax the same way a sole proprietor does. Electing to be taxed as a corporation (such as an S corporation) changes the picture; talk to a tax professional before doing that.
When should I update my percentage for 2027?
When the IRS publishes the 2027 rate schedules and standard deduction, and whenever your profit changes a lot. The Social Security cap already rises to $192,300 for 2027. A separate account and a weekly transfer, tracked in something like the bookkeeping spreadsheet, make next year easier.