How to Set Your Freelance Rate Without Underselling Yourself

Work backwards from what you need. What annual take-home income do you require — not want, but require to cover rent, food, savings, and basic life? Add a target amount for retirement savings and a buffer for irregular expenses.

Example: $70,000 take-home target + $10,000 retirement savings + $5,000 buffer = $85,000 gross income needed before taxes.

Employees see their employer pay half of Social Security and Medicare taxes. As a freelancer, you pay both halves — 15.3% self-employment tax on the first $160,200 of income (2024), plus federal and state income taxes on top.

• Self-employment tax: 15.3% (12.4% Social Security + 2.9% Medicare)
• Federal income tax: 22–24% for most working freelancers
• State income tax: 0–13% depending on state
• Total effective rate: 30–45% in most US states

A freelancer working 40 hours/week isn't billing 40 hours/week. Time also goes to:

• Client communication, proposals, and revisions
• Invoicing, bookkeeping, and admin
• Business development and marketing
• Professional development
• Vacation, sick days, and paid holidays (all unfunded unless you fund them)

Realistically, 40 hours/week of working yields 25–30 billable hours. Use 50 billable weeks/year as a starting estimate (accounting for 2 weeks vacation/sick time).

Annual gross income needed: $85,000. Billable hours: 25/week × 50 weeks = 1,250 hours/year.

Add business expenses: software, hardware, home office, professional insurance, health insurance (not employer-subsidized as a freelancer): estimate $8,000–15,000/year.

• Income needed: $85,000
• Business expenses: $12,000
• Total revenue needed: $97,000
• Divide by 1,250 billable hours = $77.60/hour minimum rate