What Percentage of Income Should a 1099 Contractor Save for Taxes? The 30% Rule
The question every new contractor asks in month one: what percentage of income should a 1099 contractor save for taxes? The standard answer is 30% of net profit, and it is a good default. Below is why 30% is the number, when it is wrong, and a short worksheet to replace the rule of thumb with your own percentage.
The two taxes inside the percentage
Every 1099 dollar faces two federal taxes. The first is self-employment tax: 15.3%, made of 12.4% Social Security and 2.9% Medicare. It applies to 92.35% of your net earnings, an adjustment that mirrors the tax break W-2 employers get on their share, so the effective rate lands around 14.1% rather than 15.3%. On $100,000 of net profit that is $14,130. The Social Security portion stops at the annual wage base, $184,500 for 2026, above which only the 2.9% Medicare slice applies. You also deduct half of the self-employment tax as an above-the-line adjustment, which trims your income tax but not the SE tax itself.
The second is federal income tax at your marginal rate, which depends on total income and filing status. Add a state income tax on top if your state has one. The common 25 to 30% rule of thumb is just the SE tax plus a modest marginal income tax rate, rounded into one easy number.
When 30% is wrong
The rule bends at both ends. If your net profit is modest and you live in a state with no income tax, 25% often covers it. If you earn well into six figures or live in a high-tax state, plan for 35% or more. At the extreme, a contractor in the 24% federal bracket with a 5% state tax faces roughly 44% of net income in combined taxes: 14.1% SE plus 24% federal plus 5% state. The exact figure is personal, which is why the worksheet matters more than the slogan.
The savings-rate worksheet
Step 1: Net profit
Gross 1099 income minus ordinary business expenses. This is the number both taxes are computed on.
Step 2: Self-employment tax
Multiply net profit by 0.9235, then by 0.153. That is your SE tax. On $100,000 of net profit: $14,130.
Step 3: Income tax
Subtract half your SE tax from net profit to get adjusted income, then apply your marginal federal rate and state rate to estimate income tax.
Step 4: Your percentage
Add the two taxes, divide by net profit, and add a 2 to 5 point buffer. Move the result into a separate savings account the day each payment arrives.
If you expect to owe $1,000 or more after withholding, the money you save needs to move quarterly, not sit until April. The safe harbor rule, pay 100% of last year's tax or 90% of this year's, is what keeps the underpayment penalty off your return. Set the percentage, automate the transfer, and pay the quarters. The contractors who get hurt are not the ones who miscalculated by two points. They are the ones who calculated perfectly and never moved the money.
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Open the 1099 vs W-2 CalculatorFrequently asked questions
What percentage of income should a 1099 contractor save for taxes?
Start with 30% of net profit. That covers roughly 14.1% in self-employment tax plus a typical marginal income tax rate. Save 25% only if your income is modest and your state has no income tax; save 35% or more at six-figure income in a high-tax state.
What is the self-employment tax rate for 1099 contractors?
15.3% total: 12.4% for Social Security and 2.9% for Medicare. It applies to 92.35% of net earnings, so the effective rate is about 14.1%. The 12.4% Social Security portion applies only up to the annual wage base, which is $184,500 for 2026.
Should I save taxes on gross or net income?
Net income, after ordinary business deductions. Self-employment tax and income tax both apply to net profit, not gross. If you do not track expenses reliably, use gross income with a higher percentage, 30% or more, to avoid a shortfall.
Can I deduct half of my self-employment tax?
Yes. You deduct the employer-equivalent half of self-employment tax as an above-the-line adjustment on Form 1040. It lowers the income subject to federal income tax but does not reduce the self-employment tax itself.
Do I have to pay quarterly estimated taxes as a 1099 contractor?
If you expect to owe $1,000 or more after withholding, yes. The safe harbor rule requires paying at least 100% of last year's tax or 90% of this year's to avoid underpayment penalties.
Related: The Estimated Tax Safe Harbor Rule for 1099 Contractors · How 1099 Contractors Pay Quarterly Taxes · Do 1099 Contractors Pay More Taxes Than W-2 Employees? · When Should a Freelancer Switch to an S-Corp?
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