Why you need to set money aside
When you work on a W-2, your employer withholds taxes from every paycheck. On a 1099, nobody withholds anything: you get the full amount and the whole tax bill is yours. On top of income tax, you owe self-employment tax of 15.3% (Social Security and Medicare) on 92.35% of your profit.
If you spend everything and wait until April, you get a bill you may not be able to pay, and probably an estimated tax penalty. The fix is simple: keep a fixed share of every payment.
- Self-employment tax$5,652 · 14%
- Income tax$1,775 · 4%
- What you keep$32,573 · 82%
Of every dollar: 14¢ self-employment tax, 4¢ income tax and 82¢ for you.
How much to set aside, by profit
Federal taxes caused by your 1099 profit, for a single filer with no other income in 2026. Calculated with self-employment tax, the standard deduction and the QBI deduction.
| Yearly profit | Federal tax | Share to set aside | Per quarter | Per month |
|---|---|---|---|---|
| $20,000 | $3,025 | 15% | $756 | $252 |
| $40,000 | $7,427 | 19% | $1,857 | $619 |
| $60,000 | $12,037 | 20% | $3,009 | $1,003 |
| $80,000 | $16,647 | 21% | $4,162 | $1,387 |
| $120,000 | $28,462 | 24% | $7,115 | $2,372 |
The share grows with profit because income tax is progressive: the more you earn, the more of it falls into higher brackets. Self-employment tax, on the other hand, is a flat 15.3% up to the Social Security wage base ($184,500).
With a W-2 job, set aside more
If you also have a job, your salary already uses up the standard deduction and the lowest tax brackets. So every dollar of side income is taxed at your highest bracket, plus self-employment tax.
| $20,000 of 1099 profit | Federal tax on it | Share to set aside |
|---|---|---|
| As your only income | $3,025 | 15% |
| On top of a $50,000 W-2 salary | $4,610 | 23% |
Same side income, a very different bill. One alternative to quarterly payments: raise the withholding on your W-2 job with a new Form W-4 so it covers your side income too.
Add your state
The figures above are federal only. Most states also tax income, and some cities do too. A few states have no income tax on wages, such as Florida, Texas, Nevada and Washington. Check your state’s tax agency for its rates and whether it expects estimated payments too. Our guide to state taxes for 1099 workers explains the basics.
For gig drivers: a share of what you earn
If you drive for apps, your big expense is miles, so it is easier to set aside a share of each payout than of profit. In our DoorDash example, a driver with $38,500 of earnings and 12,000 miles owes $4,898 in federal taxes: about 13% of each payout, or $94 a week. Our gig driver tax calculator works it out with your own miles.
A simple system that works
- Open a separate savings account just for taxes. Out of sight, out of mind.
- Every time you get paid, move your percentage to it right away. Some banks let you automate this.
- Pay the IRS each quarter from that account: on April 15, 2026, June 15, 2026, September 15, 2026 and January 15, 2027 for 2026. Use IRS Direct Pay or your IRS Online Account.
- Check once a quarter. If your income changed, adjust the percentage. Our quarterly estimated tax calculator recalculates your payments.
- In April, what is left over is yours. If you set aside a bit too much, it becomes a small bonus instead of a debt.
Pay less: deductions and retirement
Every business expense you deduct lowers the tax on your profit. Keep receipts and a mileage log, and see 1099 deductions by profession. Contributions to a SEP IRA or solo 401(k) also lower your income tax.
For your exact number, including other income and expenses, use our 1099 tax calculator.