Financial planning
for gig workers and freelancers.
Irregular income, no employer benefits, no 401(k) match, 15.3% self-employment taxself-employment taxThe 15.3% tax self-employed people pay on business income to cover both the employee and employer share of Social Security and Medicare.Full definition on top of income tax. Gig workers and freelancers need a different plan from W-2 employees: account for taxes, arrange health insurance and retirement accounts, and budget for variable income.
This page covers US federal tax and benefits rules. Other countries have their own self-employment frameworks (UK Self Assessment, Canadian self-employed CPP/EI, Australian PAYG instalments) with different mechanics.
This page covers gig-worker taxes, health insurance, retirement accounts and budgeting in depth. If you're new to self-employment, start with Self-Employed: Taxes, Solo 401k, S-Corp for the setup steps.
Gig work means 15.3% self-employment tax on net earnings up to $184,500 (2026) instead of 7.65% FICA, quarterly estimated payments once you expect to owe $1,000 or more, and your own health coverage. Set aside 25-30% of each payment. A Solo 401(k) allows $24,500 as employee plus up to 25% of compensation as employer, about 20% of net self-employment earnings for a sole proprietor.
On this page
Section 1 · The core problems
W-2 employees pay 7.65% in FICAFederal Insurance Contributions Act (FICA)The federal payroll tax that funds Social Security and Medicare. Workers pay 6.2% for Social Security (on wages up to $184,500 in 2026) plus 1.45% for Medicare, and employers match both. Self-employed people pay both halves, 15.3%, as self-employment tax.Full definition. The employer pays the other 7.65%. Gig workers pay both sides: 15.3% on net earnings up to the Social Security wage base ($184,500 in 2026), then 2.9% Medicare beyond, plus 0.9% Additional Medicare above $200k (single) / $250k (MFJMarried Filing Jointly (MFJ)A tax filing status where a married couple combines their income and deductions on one tax return.). You can deduct half of the SE tax from your income but you still pay the full amount verify×DON'T TRUST, VERIFYClaim: Self-employment tax structure: 15.3% to wage base, 2.9% above, plus 0.9% Additional Medicare.Verify at: IRS SE Tax page ↗ Source 1 in the list belowWage-base figures and rates published annually. The half-deduction applies above-the-line on Schedule 1..
Federal taxes for a single filer:
- Gig worker: SE tax ~$8,478 + income tax on AGIAdjusted Gross Income (AGI)Your total income minus certain deductions, used to calculate your tax bill.Full definition ~$3,559 = ~$12,037 (~20.1%)
- W-2 worker: FICA ~$4,590 + income tax ~$5,020 = ~$9,610 (~16.0%)
- The gig worker pays approximately $2,400 more at the same nominal income.
This is why gig income should be priced at least 30% above the W-2 equivalent for the same total compensation, before accounting for missing benefits.
Section 2 · The tax system
Quarterly estimated taxes
If you expect to owe $1,000 or more in taxes, you must pay quarterly via Form 1040-ES. Due dates: April 15 (Q1), June 15 (Q2), September 15 (Q3), January 15 (Q4) of the following year verify×DON'T TRUST, VERIFYClaim: Quarterly estimated tax due dates are 4/15, 6/15, 9/15, and 1/15.Verify at: IRS Form 1040-ES ↗ Source 2 in the list belowNote that quarters are not equal length; missing a deadline triggers underpayment penalty calculated quarterly.. The underpayment penalty is calculated as approximately 8% annualized interest on each quarter's underpayment. If clients pay you in Bitcoin, the invoice amount is ordinary income at receipt and belongs in these estimates; see getting paid in Bitcoin.
The safe harbor: pay 100% of last year's tax liability in withholding or estimated payments (110% if AGI over $150,000). If you meet this, no underpayment penalty regardless of what you owe at filing. The safe harbor is the simplest way to handle a rising-income year.
Tax set-aside rule of thumb
Set aside 25-30% of every payment you receive into a separate savings account. That account is for the IRS, not for you. Pay quarterly estimates from that account.
Deductible business expenses
- Home office (a dedicated space used only for business): actual expenses or simplified method ($5/sqft up to 300 sqft) verify×DON'T TRUST, VERIFYClaim: Home-office simplified method is $5/sqft up to 300 sqft.Verify at: IRS Form 8829 ↗ Source 3 in the list belowForm 8829 details actual-expenses method; simplified method is described in Pub 587..
- Vehicle (business use): standard mileage rate (67 cents/mile in 2024, updated annually) or actual expenses.
- Health insurance premiums: 100% deductible above-the-line for self-employed.
- Half of SE tax: deductible above-the-line.
- Retirement contributions: Solo 401(k), SEP IRAIndividual Retirement Account (IRA)A retirement account with tax advantages and eligibility rules. Traditional IRA contributions may be deductible; taxable withdrawals generally enter income. Roth contributions use after-tax money, and qualified Roth withdrawals are tax-free.Full definition, or SIMPLE IRA are deductible. See Section 4.
- Equipment, software, subscriptions used for work: Schedule C deductions.
- QBIQualified Business Income (QBI)Income from a self-employed business or partnership that may qualify for a 20% tax deduction under current law.Full definition Deduction (now permanent): up to 20% of qualified business income (subject to income phase-outs and service-business limits). Originally a TCJATax Cuts and Jobs Act (TCJA)The 2017 federal tax law that nearly doubled the standard deduction, capped the state and local tax (SALT) deduction at $10,000, and cut individual and corporate tax rates. In July 2025 the One Big Beautiful Bill Act made most of its personal cuts permanent and raised most filers' SALT cap to at least $40,000 through 2029.Full definition provision scheduled to expire after December 31, 2025; the One Big Beautiful Bill Act (signed July 4, 2025) made it permanent. See After OBBBA: What the 2026 Tax Code Looks Like.
Section 3 · Health insurance
- ACA Marketplace. Health insurance exchange for people. Premium tax credits based on income. For variable-income gig workers, estimate conservatively to avoid having to pay back credits at tax time. See healthcare.gov.
- Spouse's employer plan. If married to a W-2 employee with employer health coverage, joining their plan is often more cost-effective than the individual market.
- HDHPHigh-Deductible Health Plan (HDHP)A health-plan category with statutory deductible and out-of-pocket rules. HSA eligibility also depends on other conditions. Special 2026 rules cover qualifying bronze and catastrophic plans; verify the plan and your own eligibility rather than relying on its deductible alone.Full definition + HSAHealth Savings Account (HSA)A health savings account available only when eligibility requirements are met. Federal tax benefits depend on contribution limits and qualified medical expenses. Health coverage, other coverage and Medicare enrollment can affect eligibility; state tax treatment can differ.Full definition combination. A high-deductible marketplace plan paired with a Health Savings Account. Lower premium, triple-tax-advantaged HSA, effective for healthy people with low expected medical costs. See the HSA calculator.
- Health-sharing ministries. Not insurance. Members share medical costs voluntarily. Lower monthly cost but no ACA protections, no guaranteed issue, and pre-existing conditions often excluded. Research carefully; recovery on a major claim is not guaranteed.
- Freelancers Union or trade-association plans. Some industries have group-purchasing options that beat the individual market.
Section 4 · Retirement accounts for the self-employed
Requires employer matchemployer matchAn employer contribution linked to qualifying employee contributions under a plan formula. Eligibility, vesting and plan terms determine what you receive and keep. The match ratio is not an annual investment return, and the invested balance can fall.Full definition. Lower contribution limits than Solo 401(k). Not typically the right choice for solo operators.
Section 5 · Budgeting with irregular income
The fixed-floor-first method
- List all fixed monthly expenses (rent, utilities, insurance, debt minimums, recurring subscriptions).
- Calculate the minimum monthly income needed to cover them.
- Build a buffer of 3 months of fixed expenses in a savings account.
- Treat the buffer as a salary-smoothing account.
The system
- All client/customer payments go into a business account.
- Transfer a fixed monthly "salary" to your personal checking each month, regardless of what came in. Set the salary at what you need to live on, not what you earned last month.
- Good months: the buffer grows. Bad months: the buffer covers.
- The buffer never has to think about feast-and-famine; you do not.
The tax account
Transfer 25-30% of every payment to a dedicated savings account immediately when the payment hits your business account. That money is not yours; it belongs to the IRS. Pay quarterly estimates from that account. The discipline of treating the tax money as gone removes the temptation to spend it during good months.
Where to go from here
Sources
Verify badges in the text link to these sources. Figures, rates and rules change: check each source’s date before acting on it.
- IRS Self-Employment Tax page · irs.gov. ↩
- IRS Form 1040-ES (Estimated Tax) · irs.gov/forms-pubs/about-form-1040-es. ↩
- IRS Form 8829 (Home Office) and Publication 587 · irs.gov. ↩
- IRS Solo 401(k) page · irs.gov/retirement-plans/one-participant-401k-plans. ↩
- IRS SEP IRA contribution rules · irs.gov.
- HealthCare.gov ACA marketplace · healthcare.gov.
Last updated . Not financial advice. Consult a CPA in your first year self-employed. Disclosures · How pages are reviewed