What percentage should a contractor save for taxes?

A common rule is 25–30% of net profit (revenue minus deductible business costs), not of total revenue. Higher earners or those in high-tax states should lean toward 30–35%. This covers federal income tax plus the 15.3% self-employment tax. Confirm your exact figure with an accountant.

Why do self-employed contractors pay more tax?

Because of the 15.3% self-employment tax. As an employee, your employer paid half of your Social Security and Medicare contributions. Self-employed, you pay both halves yourself, on top of regular income tax — which is why the savings percentage needs to be higher than people expect.

Do contractors have to pay quarterly taxes?

Generally yes, if you expect to owe more than about $1,000 for the year. The IRS requires quarterly estimated payments, due roughly in April, June, September, and January. Missing them can trigger an underpayment penalty even if you pay in full at filing time.

How Much Should Contractors Save for Taxes

Save on profit, not revenue

The single most important distinction: you are taxed on your net profit, not your total revenue. If you invoiced $200,000 but spent $120,000 on materials, subcontractors, fuel, tools, and other deductible costs, your taxable profit is roughly $80,000 — and your tax set-aside is a percentage of that $80,000, not the $200,000.

Contractors who save a percentage of every invoice without accounting for costs either hoard far too much cash or, more dangerously, never track the distinction and get a nasty surprise at filing time. You need to know your real profit, which is exactly what job costing and tracking actuals give you.

A note before the numbers: this is general guidance to help you plan, not tax advice. Tax brackets, deductions, and rules vary by income, structure, and state — confirm your specific figures with an accountant.

The self-employment tax surprise

The reason a "just save 15%" instinct gets contractors in trouble is self-employment tax. When you were an employee, your employer quietly paid half of your Social Security and Medicare taxes. As a self-employed contractor, you pay both halves — that's the 15.3% self-employment tax, on top of regular income tax.

So your set-aside has to cover two things stacked together: federal (and possibly state) income tax on your profit, plus that 15.3% self-employment tax. For many contractors in the lower-to-middle brackets, the combined bite lands somewhere around 25–30% of net profit. That's where the rule of thumb comes from — it's the two layers added together, not just income tax alone.

How much to actually set aside

A workable starting framework, applied to your net profit:

25% — lower-profit years, lower-tax state, lots of deductions.
30% — a safe default for most established solo contractors.
30–35% — higher earners, high-tax states, or if you want a comfortable buffer.

It's better to over-save slightly and get a refund or a head start on next year than to come up short. The mechanics matter as much as the percentage: every time an invoice is paid, move that percentage of the profit into a separate savings account you don't touch. Treating tax money as if it were spendable income is how contractors end up borrowing to pay a tax bill.

Quarterly estimated taxes

The IRS doesn't want to wait until April. If you expect to owe more than about $1,000 for the year, you're generally required to pay quarterly estimated taxes — four payments across the year. Skip them and you can owe an underpayment penalty even if you pay the full amount at filing.

The quarterly deadlines fall roughly in April, June, September, and January. The simplest approach is to keep your tax set-aside in its separate account and send a payment each quarter based on the profit you actually earned in that period. Because you've been moving the money aside as you go, the payment is already sitting there — no scramble.

Knowing your real, post-cost profit per job is what makes all of this accurate instead of guesswork. Fieldpaid reveals true margin on every paid invoice, so you can see your actual profit building up through the year and size your tax set-aside and quarterly payments to reality rather than a rough guess. Pair it with an accountant to file correctly.

How Much Should Contractors Save for Taxes? (A Simple Rule and the Real Math)