How much to set aside for taxes when you are paid 1099
A 1099 payment has no tax withheld. The tax is still owed. Here is what it consists of, how much it comes to, and when it is paid.
What is owed
Self-employment income carries two federal taxes: the 15.3% self-employment tax — Social Security and Medicare, calculated on 92.35% of net profit — and federal income tax. Most states add their own income tax. All of it is calculated on profit: gross pay minus your business expenses, not on every dollar received. A W-2 employee never sees the 15.3%, because the employer withholds half and pays the other half. (IRS: Self-Employment Tax.)
The 25–30% rule of thumb
A commonly cited working range is to reserve 25–30% of profit to cover self-employment tax plus income tax. This is a rule of thumb rather than a calculated figure: the actual percentage rises with income and is higher in a state with its own income tax. The W-2 vs 1099 calculator returns the calculated amount for your income and state.
Quarterly estimated tax
Anyone expecting to owe $1,000 or more pays estimated tax four times a year using Form 1040-ES. For the 2026 tax year the payments are generally due in April, June, and September of 2026 and January of 2027. Payment can be made through IRS Direct Pay or the Electronic Federal Tax Payment System, and most states with an income tax run a parallel quarterly system. Missing a quarter can result in an underpayment penalty even if the full amount is paid later. (IRS: Estimated Taxes.)
The safe-harbor rule
The safe harbor is the amount that avoids an underpayment penalty regardless of what you end up owing. It is met by paying, across the year, at least 90% of the current year's tax or 100% of the prior year's tax — 110% if prior-year income was above $150,000 — whichever is smaller. The prior-year option does not require forecasting current-year income: a balance may still be due in April, but not a penalty. (IRS: Estimated Taxes.)
What changes the amount
Four things move it: business expenses (more deductible cost means less profit and less tax), your state (no income tax versus a state that levies one), a spouse's income if filing jointly, which can shift the bracket, and deductible retirement contributions to a SEP-IRA or Solo 401(k).
Related
Estimates for planning, not tax advice.