Why a freelance rate is higher than a salary
A freelancer’s hourly rate has to cover much more than take-home pay. There is no employer paying half of Social Security and Medicare, no paid vacation, no health plan and no 401(k) match, and many working hours go to tasks nobody pays for: finding clients, invoicing, bookkeeping and learning.
The calculator works backward from the income you want to keep:
- Revenue needed = business expenses + target income ÷ (1 − tax rate)
- Billable hours = billable hours per week × weeks worked per year
- Hourly rate = revenue needed ÷ billable hours
Worked example
You want to take home $80,000 a year, expect $6,000 of business expenses and set aside 30% for taxes. You bill 25 hours a week for 46 weeks.
- Pre-tax profit needed: 80,000 ÷ (1 − 0.30) = $114,286.
- Revenue needed: 114,286 + 6,000 = $120,286, or about $10,024 a month.
- Billable hours: 25 × 46 = 1,150 hours.
- Hourly rate: 120,286 ÷ 1,150 = $104.60, or about $837 for an 8-hour day.
- Taxes to set aside: about $34,286.
An employee taking home the same $80,000 would earn a salary of roughly $107,000 before tax, but the employer would also pay benefits and payroll taxes on top.
Choosing realistic inputs
| Input | Typical range | Notes |
|---|---|---|
| Billable hours per week | 20 to 30 | 40-hour weeks are rare once admin is counted |
| Weeks worked | 44 to 48 | Leave room for vacation, holidays and sick days |
| Taxes | 25 to 35% | Self-employment tax plus federal and state income tax |
| Expenses | 5 to 20% of revenue | Health insurance is often the largest item |
Self-employment tax
Self-employed people pay 15.3% (12.4% Social Security up to the wage base, plus 2.9% Medicare) on 92.35% of net earnings, and can deduct half of it from income. Federal and state income taxes come on top. Pay quarterly estimated taxes to avoid penalties, and consider a SEP-IRA or solo 401(k) to save for retirement while lowering taxable income.
Beyond the hourly rate
- Price by project or value when you can, so faster work does not mean lower pay.
- Raise rates regularly, at least with inflation, and for new clients first.
- Keep a cash buffer of three to six months of expenses for slow periods.
- Check market rates in your field, since a calculated rate far above the market needs a strong specialty to justify it.
This calculator gives estimates for education and planning. It is not investment, tax or legal advice; for decisions about your own situation, talk to a qualified financial professional.