Four dates, one set-aside, and the safe harbour that stops the penalty.
By David Liu, founder of DIY9lives. Last updated November 2, 2026.
Nobody withholds tax on 1099 income. That is the whole difference from a paycheck, and it is why April arrives with a bill rather than a refund. The United States taxes income as it is earned, so a freelancer is expected to pay during the year, in four instalments. This guide works through what those payments are made of, using the same arithmetic as the freelance tax estimator.
An employee pays income tax and half of Social Security and Medicare; the employer pays the other half. A sole proprietor is both, so the self-employment tax covers the whole 15.3%: 12.4% for Social Security and 2.9% for Medicare.
It is charged on 92.35% of net profit rather than the whole amount. That reduction stands in for the employer half being deductible, and it is built into the form. Social Security applies only up to an annual wage base — $184,500 for 2026, according to the Social Security Administration's announced figure — while Medicare has no ceiling.
Income tax is separate and sits on top. On a $72,000 profit, the self-employment tax is about $10,173 and the federal income tax is about $5,891. Two very different numbers, and the first one is proportional: it does not care about your bracket.
$80,000 of freelance income and $8,000 of deductible expenses, single filer, no other income:
| Line | Amount |
|---|---|
| Net profit | $72,000 |
| Self-employment tax base (92.35%) | $66,492 |
| Social Security 12.4% | $8,245 |
| Medicare 2.9% | $1,928 |
| Self-employment tax | $10,173 |
| Deductible half of SE tax | $5,086 |
| Taxable income after the standard deduction | $50,813 |
| Federal income tax | $5,891 |
| Total federal | $16,064 |
| Per quarter | $4,016 |
The standard deduction used here is the 2026 figure from IRS Revenue Procedure 2025-32: $16,100 for a single filer, $32,200 for married filing jointly. The bracket thresholds in the estimator come from the same revenue procedure. If you are reading this in a later year, those numbers have moved, and the tool is the thing to re-run rather than the table.
The practical translation is 20% of net profit. Set aside a fifth of every payment and the year ends with the bill covered, roughly.
Estimated payments are generally due 15 April, 15 June, 15 September, and 15 January of the following year. The IRS publishes them on Form 1040-ES each year, and a date that falls on a weekend or holiday moves to the next business day, which is why the January date sometimes shifts.
The January payment belongs to the previous tax year. This catches people out in their first year: the payment made in January 2027 is the fourth quarter of 2026, not a head start on 2027.
There is a rule that makes the penalty avoidable even if your estimate is wrong. Pay at least 90% of the tax you owe for the current year, or 100% of what you owed last year, and the underpayment penalty does not apply. If your prior-year income was above $150,000, the second figure becomes 110%. The rules are in IRS Publication 505.
That is the useful trick for a freelancer with an uneven year: base the payments on last year's total tax, and you can stop worrying about the current year until you file. If last year was your first with self-employment income, there is nothing to base it on, so estimate forward and adjust.
The penalty itself is interest-like rather than punitive. It is calculated per quarter on the amount you underpaid, so it grows with how late the money was due. Paying nothing all year and settling in April is the most expensive version of the same behaviour.
Expenses reduce both taxes. A $2,000 software bill is not just a $2,000 deduction from income tax; it also removes about $280 of self-employment tax. Track expenses as they happen, because reconstructing a year in April is where deductions go missing.
Most states with an income tax want their own estimated payments on their own schedule, and some cities do too. The estimator on this site covers federal only, so the set-aside has to be larger if you live somewhere with a state tax.
A solo 401(k) or a SEP-IRA contribution reduces taxable profit, and for a profitable solo business the effect on the bill can be substantial. It does not reduce the self-employment tax, but it does reduce income tax. This is the single biggest lever most freelancers never pull, and it needs a conversation with someone who can model your actual situation.
If your income arrives in lumps, pay more in the quarter the lump landed. The penalty is calculated quarter by quarter, so an even split across a lumpy year can produce a small charge even when the annual total is right.
Open a second account and move 25% of every payment into it the day it arrives. That covers the 20% federal estimate and leaves a margin for state tax, a slow quarter, or a bill you did not predict. When the quarterly date comes, the money is already there and the decision is arithmetic rather than a scramble.
The other habit is a mid-year check. Re-run the estimator in July with six months of actual numbers. If the first half was better than expected, raise the September payment; if it was worse, the safe-harbour rule is what keeps you out of trouble.
This is an estimate, not advice, and the numbers move every year. The brackets, the wage base and the standard deduction all change with inflation, which is why every figure here is dated.
Plenty of freelancers have a day job, and the arithmetic changes in a useful way. Payroll already withholds on the W-2 wages, so the freelancing income sits on top of that salary and is taxed at your marginal bracket rather than from zero. The self-employment tax, meanwhile, is calculated only on the 1099 profit, and the Social Security portion stops once the combined wages pass the annual wage base.
Two practical consequences. First, the safe harbour is easy: the withholding from your job may already cover the extra tax, in which case no quarterly payment is needed at all. Check by comparing total withholding to last year's total tax. Second, the marginal rate is what matters for the side income, not your average rate, so a $10,000 freelance year on top of a $70,000 salary attracts closer to 22% income tax than to the 12% the salary alone might suggest.
Enter the W-2 wages in the other-income field of the estimator and the bracket stacking is handled for you.
Three things sit outside the federal arithmetic. State income tax is the largest: most states with an income tax want their own estimated payments, on their own dates, and a few cities want a third. The self-employed health insurance deduction is the second, and it is worth real money if you buy your own cover — premiums for you and your dependants come off taxable profit, though not off the self-employment tax. The third is a home office, which is legitimately deductible when the space is used regularly and exclusively for work, and which is the deduction most often skipped because people believe it invites an audit.
None of these change the quarterly habit. They change the percentage you set aside, which is why a flat 25% is a safer default than the 20% that covers federal alone.
Last updated: November 2, 2026. Estimates only. Not tax, legal, financial, or professional advice. See the terms.