How much to set aside for tax when your income is lumpy
A flat quarterly transfer under-reserves in your good quarters, which are exactly the quarters that generate the bill.
The short answer
Set aside a fixed percentage of every payment on the day it arrives, rather than a fixed amount each quarter. Self-employed income is uneven, and a flat transfer reserves too much in quiet quarters and too little in busy ones, which is when the liability is actually being created.
The formula
reserve per payment = payment x set-aside rate
flat method = estimated annual liability / 4
shortfall in a quarter = liability created that quarter - amount reserved
The set-aside rate is not your tax rate, it is your tax rate plus a margin for being wrong. Overshooting produces savings; undershooting produces a demand letter.
Worked example
A year of $78,000 with a 30% set-aside rate, earned unevenly across the quarters:
Q1 12,000 → set aside 3,600 · Q2 26,000 → 7,800
Q3 15,000 → 4,500 · Q4 25,000 → 7,500
total reserved = 23,400
flat method = 23,400 / 4 = 5,850 a quarter
Q2 under the flat method: reserved 5,850, created 7,800
shortfall carried into Q3 = 1,950
Both methods reserve $23,400 across the year. Only one of them has the money in the account in the quarter that produced the liability, and the flat method is quietly borrowing from your good quarter to flatter your quiet one.
Why the account has to be separate
Money in the account you spend from is money you will spend. This is not a discipline problem, it is that a single balance gives you no way to tell available cash from money already committed.
The transfer also has to happen on the day the payment lands rather than at month end. A rule that runs on the same trigger as the income is one you keep; a rule that requires you to sit down and reconcile is one you abandon in a busy month.
Choosing the rate
The rate has to carry income tax, any self-employment or social contribution, and in some places a sales tax you have collected and do not own. That last one catches people badly, because it arrives in your account looking exactly like revenue.
Twenty five to thirty five percent covers most sole traders in most places at moderate income. If you cross into a higher band mid-year, the marginal rate on the income above the threshold is what matters, not the average, and the average is what people plan with.
The first year is the one that hurts
In many systems the first bill includes both the tax owed and an advance payment toward the following year, which can make it roughly one and a half times what a first-time freelancer expects.
Nobody warns you about this in the year you are earning well and feeling good about it. If you are in year one, find out now whether your system does this, because the difference between planning for it and discovering it is several thousand dollars of surprise.
What this leaves out
- Rates and payment schedules vary by country and structure. The method holds everywhere; the percentage does not.
- Excludes deductible expenses, which reduce the liability and mean a flat percentage of gross usually over-reserves. That is the safe direction to be wrong in.
- Not tax advice. An accountant who knows your jurisdiction will beat any general percentage.
Common questions
- What percentage should a freelancer set aside?
- Between 25% and 35% of every payment suits most sole traders at moderate income, and erring high is cheap. The cost of over-reserving is that you have savings; the cost of under-reserving is a bill you cannot pay.
- Should I set aside on gross or net income?
- Gross, because it is simpler and it errs safe. Reserving on net requires you to know your deductible expenses in advance, which you do not, and the arithmetic tends to go wrong in the expensive direction.
- What if I have already spent it?
- Start the percentage rule today on new income and treat the existing gap as a separate debt with its own repayment plan. Trying to fix both out of the same cash flow is how one bad year becomes two.
Spreadsheets that do this
The formulas above, already built and checked — so you fill in your numbers rather than the arithmetic.
Freelancer Quarterly Estimated Tax Tracker
See the smaller, IRS-safe quarterly payment between two tax methods, from your client income log.
- Google Sheets
- Excel
Small Business Quarterly Estimated Tax Tracker
Know what to set aside and pay the IRS each quarter, calculated from your income log.
- Google Sheets
- Excel
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Last reviewed 22 August 2026