How Much to Set Aside From Your 1099 Income for Taxes

Start with your expected tax bracket, then add self-employment tax

The amount you set aside depends on two things: the income tax you'll owe on your earnings, plus the self-employment tax (Social Security and Medicare) that comes out of 1099 income. Most 1099 workers should set aside between 25% and 30% of their gross income, but the real number for you depends on what tax bracket you fall into and whether you have other income.

Income tax is progressive — you pay a higher percentage only on income above each bracket threshold. Self-employment tax is flat: 15.3% of your net self-employment income (92.35% of your gross 1099 income). Together, these two taxes are what you need to cover when you file.

The easiest approach is to calculate a blended rate: add your expected income tax rate to the self-employment tax rate, then set that percentage aside from every 1099 payment you receive. If you're in the 22% federal income tax bracket and owe 15.3% self-employment tax, you'd set aside roughly 37% of your gross income. If you're in the 12% bracket, you'd set aside roughly 27%.

Key Takeaways

• Self-employment tax is 15.3% of your net 1099 income and applies to all 1099 workers regardless of income level.
• Income tax rates vary by bracket — you pay 10%, 12%, 22%, 24%, 32%, 35%, or 37% depending on your total income for the year.
• Setting aside 25% to 30% of gross 1099 income covers most workers, but you may need more if you're in a higher tax bracket or have other income.
• Quarterly estimated tax payments reduce penalties and interest, though setting aside the money in a separate account works if you pay in full by April 15.
• Deductible business expenses lower your taxable income, so the more you can document, the less you'll owe.

How to find your federal income tax bracket

Your federal income tax bracket is determined by your total income for the year — not just your 1099 income. If you have a W-2 job, a spouse's income, investment income, or other sources, those all count toward your bracket.

The 2024 federal tax brackets for single filers range from 10% (on income up to $11,600) to 37% (on income over $578,100). For married filing jointly, the brackets are wider — the 10% bracket goes up to $23,200, and the 37% bracket starts at $693,750. These numbers change each year.

To estimate your bracket, add up all your expected income for the year, then look up the bracket that matches your total. The IRS publishes the current brackets on its website each January. Once you know your bracket, you know what percentage of your 1099 income will go to federal income tax.

Account for state and local income taxes

Depending on where you live and work, you may owe state income tax, city income tax, or both. Nine states have no income tax at all (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire). Most others tax 1099 income at rates between 3% and 13%.

If you live in a state with income tax, add that rate to your federal rate and self-employment tax rate. For example, if you're in the 22% federal bracket, live in a state with 5% income tax, and owe 15.3% self-employment tax, you'd set aside roughly 42% of your gross income.

City taxes are less common but do exist in places like New York City, Philadelphia, and Columbus. If you work in a city with an income tax, check your city's tax department website for the current rate.

Reduce your tax bill with business deductions

The more business expenses you can document, the lower your taxable income becomes. You report your gross 1099 income, then subtract deductible expenses to arrive at your net profit — that's what you actually pay tax on.

Common deductible expenses for 1099 workers include a home office (either a percentage of your rent or mortgage, utilities, and insurance, or a flat $5 per square foot up to 300 square feet), equipment and supplies, software subscriptions, professional services, vehicle mileage (66 cents per mile in 2024, though this changes yearly), and health insurance premiums you pay yourself.

Keep receipts and invoices for everything. The IRS doesn't require you to attach them to your return, but you must have them if you're audited. If you can document $10,000 in business expenses against $50,000 in 1099 income, you only pay tax on $40,000 — which could save you thousands in taxes.

Decide between setting aside money or making quarterly payments

You have two ways to handle the taxes you owe: set the money aside in a separate account and pay it all when you file in April, or make quarterly estimated tax payments to the IRS in April, June, September, and January.

Setting money aside is simpler if you're disorganized or expect your income to vary throughout the year. You calculate what you think you'll owe, move that percentage of each payment to a savings account, and pay the IRS balance due when you file. The downside is that if you underpay, you'll owe interest and penalties on the shortfall.

Quarterly estimated payments (Form 1040-ES) are required if you expect to owe $1,000 or more in taxes for the year. They're due on April 15, June 15, September 15, and January 15. Making these payments on time avoids penalties even if your final tax bill is slightly different. Many 1099 workers use quarterly payments because they spread the burden across the year and reduce the risk of a large bill in April.

Adjust your estimate if your income changes

If your 1099 income is uneven — you earn a lot in some months and very little in others — your tax estimate may be off. Recalculate every quarter and adjust the amount you're setting aside if needed.

If you make quarterly estimated payments, you can adjust the amount on your next payment. If you're setting money aside, you can increase or decrease the percentage you're holding back. The goal is to avoid both overpaying (which gives the IRS an interest-free loan) and underpaying (which costs you penalties and interest).

If your income drops significantly partway through the year, you can file an amended quarterly estimate. This is especially useful if you had a strong first half but expect a weak second half.

Use a tax professional or software to verify your estimate

If your situation is straightforward — you have one 1099 income source, no dependents, and no other complications — you can calculate your estimate yourself using the IRS Form 1040-ES worksheet or a tax software package like TurboTax, H&R Block, or TaxAct.

If you have multiple income sources, significant business expenses, a home office, or other complications, a tax professional (CPA or tax preparer) can give you a more accurate estimate. The cost of a consultation — usually $150 to $400 — often pays for itself by catching deductions you'd miss or identifying a lower tax bracket you didn't know you may have access to for.

Many tax software packages include an estimated tax calculator. You enter your expected income and expenses, and the software tells you what to set aside. This is a middle ground between doing it yourself and hiring a professional.

Frequently Asked Questions

What if I set aside too much and overpay my taxes?

The IRS will refund the overpayment when you file your return, or you can ask to have it applied to next year's estimated taxes. Overpaying is safer than underpaying because you avoid penalties and interest, but it does mean you're giving the government an interest-free loan for several months.

Do I have to make quarterly payments, or can I just pay everything in April?

You're required to make quarterly payments only if you expect to owe $1,000 or more in taxes for the year. If you'll owe less than that, you can pay the full amount when you file. However, making quarterly payments reduces the risk of penalties if your estimate is off.

How do I know if my 1099 income puts me in a higher tax bracket?

Add your 1099 income to any other income you have (W-2 wages, investment income, spouse's income if filing jointly). Look up the total on the current year's tax bracket table from the IRS website. Your bracket is the one your total income falls into.

Can I deduct my home internet or phone bill?

Only the business-use portion is deductible. If you use your internet for both personal and work, you can deduct the percentage that's work-related. For a phone, you can deduct the cost of a separate business line, but not a portion of a personal line.

What happens if I don't set aside enough and owe money in April?

You'll owe the unpaid balance plus interest (currently around 8% annually) and a penalty for underpayment. The penalty is usually 0.5% of the unpaid tax per month. Setting aside 25% to 30% of your income reduces the risk of this happening.