Setting your rate
Most new freelancers underprice themselves. Here's the formula to find your real minimum:
Example:
• Target income: $80,000/year
• Business expenses: $6,000/year (software, insurance, equipment)
• Billable hours: 1,000/year (roughly 20 billable hours/week × 50 weeks)
• Minimum rate: ($80,000 + $6,000) ÷ 1,000 = $86/hour
This is your floor — market rate for your skill set may be higher. Research what others in your field charge on Glassdoor, LinkedIn, or industry-specific communities.
Hourly rate = (Target income + Business expenses) ÷ Billable hours/year
Billable hours ≠ hours worked. If you work 40 hrs/week, only about 50–60% are actually billable (the rest is admin, sales, emails, professional development).Example:
• Target income: $80,000/year
• Business expenses: $6,000/year (software, insurance, equipment)
• Billable hours: 1,000/year (roughly 20 billable hours/week × 50 weeks)
• Minimum rate: ($80,000 + $6,000) ÷ 1,000 = $86/hour
This is your floor — market rate for your skill set may be higher. Research what others in your field charge on Glassdoor, LinkedIn, or industry-specific communities.
Both have advantages depending on the situation:
Hourly billing works best when:
• Scope is unclear or likely to change
• The client is new and unpredictable
• Work is ongoing (retainers, maintenance)
Project (fixed) pricing works best when:
• Scope is clearly defined
• You're experienced and know how long it takes
• You can complete it faster than the client expects — you earn more per hour
• You want to decouple income from hours (earning based on value, not time)
Many experienced freelancers move toward value-based pricing — charging what the deliverable is worth to the client, not what it costs you to produce. A logo for a Fortune 500 company is worth more than the same logo for a local restaurant.
Hourly billing works best when:
• Scope is unclear or likely to change
• The client is new and unpredictable
• Work is ongoing (retainers, maintenance)
Project (fixed) pricing works best when:
• Scope is clearly defined
• You're experienced and know how long it takes
• You can complete it faster than the client expects — you earn more per hour
• You want to decouple income from hours (earning based on value, not time)
Many experienced freelancers move toward value-based pricing — charging what the deliverable is worth to the client, not what it costs you to produce. A logo for a Fortune 500 company is worth more than the same logo for a local restaurant.
For fixed-price projects:
1. Estimate time: Break the project into phases and estimate hours for each
2. Add buffer: Multiply by 1.3–1.5× for unexpected complications (scope creep is real)
3. Apply your rate: Total hours × hourly rate
4. Add expenses: Software licenses, stock photos, subcontractors, etc.
5. Compare to market: Does your number match what the market charges for this type of project?
Always put your scope in writing — what's included and what's not. "Unlimited revisions" kills project profitability.
1. Estimate time: Break the project into phases and estimate hours for each
2. Add buffer: Multiply by 1.3–1.5× for unexpected complications (scope creep is real)
3. Apply your rate: Total hours × hourly rate
4. Add expenses: Software licenses, stock photos, subcontractors, etc.
5. Compare to market: Does your number match what the market charges for this type of project?
Always put your scope in writing — what's included and what's not. "Unlimited revisions" kills project profitability.
💼 Freelance Rate Calculator
Enter your target income, expenses, and hours — get your minimum billable rate.
Freelance taxes
The standard rule: set aside 25–30% of every payment you receive. Move it to a separate savings account immediately — treat it as if it doesn't exist.
Why 25–30%?
• SE tax: ~14.1% (after the ½ SE deduction)
• Federal income tax: 10–22%+ depending on your bracket
• State income tax: 0% (TX, FL, etc.) to 13% (CA)
Texas residents have a real advantage here — no state income tax means you can often get by setting aside 25% instead of 30%+.
The buffer is intentional — after deductions (home office, equipment, health insurance, retirement contributions), many freelancers owe less than the reserve. The leftover is yours.
Why 25–30%?
• SE tax: ~14.1% (after the ½ SE deduction)
• Federal income tax: 10–22%+ depending on your bracket
• State income tax: 0% (TX, FL, etc.) to 13% (CA)
Texas residents have a real advantage here — no state income tax means you can often get by setting aside 25% instead of 30%+.
The buffer is intentional — after deductions (home office, equipment, health insurance, retirement contributions), many freelancers owe less than the reserve. The leftover is yours.
Self-employed individuals can deduct legitimate business expenses from their taxable income. Common deductions:
• Home office: Dedicated workspace square footage as % of home (simplified method: $5/sq ft, up to 300 sq ft)
• Equipment: Computer, monitor, camera, tools (Section 179 allows full deduction in year of purchase)
• Software & subscriptions: Adobe, Figma, Notion, accounting software, etc.
• Health insurance premiums: 100% deductible if you're not eligible for employer coverage through a spouse
• Retirement contributions: SEP-IRA (up to 25% of net self-employment income), Solo 401(k)
• Professional development: Courses, books, conferences
• Business travel: Mileage, lodging, meals (50%)
• Half of SE tax: Always deductible
Keep receipts and records. A CPA who works with freelancers is worth the fee in deductions found.
• Home office: Dedicated workspace square footage as % of home (simplified method: $5/sq ft, up to 300 sq ft)
• Equipment: Computer, monitor, camera, tools (Section 179 allows full deduction in year of purchase)
• Software & subscriptions: Adobe, Figma, Notion, accounting software, etc.
• Health insurance premiums: 100% deductible if you're not eligible for employer coverage through a spouse
• Retirement contributions: SEP-IRA (up to 25% of net self-employment income), Solo 401(k)
• Professional development: Courses, books, conferences
• Business travel: Mileage, lodging, meals (50%)
• Half of SE tax: Always deductible
Keep receipts and records. A CPA who works with freelancers is worth the fee in deductions found.
Employee vs. contractor comparison
On paper, the same dollar amount is less as a contractor than as an employee — but it's more nuanced than that.
On $100,000 gross (approximate, single filer):
W-2 employee:
• Employer also pays $7,650 in payroll tax (you don't see this)
• Your withholding: income tax + 7.65% employee share
• Net take-home: ~$72,000–76,000
1099 contractor:
• You pay full SE tax: $14,130
• Deduct ½ SE tax from gross: reduces taxable income
• Net after SE + income tax: ~$68,000–72,000
The real comparison: a contractor earning $115,000–$120,000 matches the total compensation of a $100,000 employee — accounting for taxes, benefits, and the employer's payroll tax contribution.
Use our W-2 vs 1099 calculator to compare your specific numbers.
On $100,000 gross (approximate, single filer):
W-2 employee:
• Employer also pays $7,650 in payroll tax (you don't see this)
• Your withholding: income tax + 7.65% employee share
• Net take-home: ~$72,000–76,000
1099 contractor:
• You pay full SE tax: $14,130
• Deduct ½ SE tax from gross: reduces taxable income
• Net after SE + income tax: ~$68,000–72,000
The real comparison: a contractor earning $115,000–$120,000 matches the total compensation of a $100,000 employee — accounting for taxes, benefits, and the employer's payroll tax contribution.
Use our W-2 vs 1099 calculator to compare your specific numbers.
Freelance calculators