What Should I Charge? A Rate Method for US Freelancers

Why salary divided by 2,080 is inadequate

Dividing a desired salary by 2,080 assumes every hour in 52 forty-hour weeks can earn revenue. A freelancer also spends time finding clients, writing proposals, doing administration, improving skills and taking time off. The shortcut also leaves business costs and planning reserves invisible.

Use the method below as a planning model, then compare its result with evidence from actual buyers. It gives you a defensible starting point, not a promise that a market will accept the result.

Your planning inputs

Target annual take-home

Choose the annual amount you want left after the federal self-employment tax estimate and your chosen income-tax planning reserve. This is T.

Business costs

Total the annual costs needed to do the work: insurance, equipment, software, professional help and other legitimate business expenses. This is E.

Billable hours per week

Estimate hours clients can actually be billed, not all hours worked. This is h.

Working weeks

Choose how many weeks you plan to work after allowing for holidays, illness, training and gaps between projects. This is w.

Margin

Choose a margin for uncertainty, reinvestment and uneven demand. This is m. It creates the target planning rate; it is not part of the baseline planning rate.

Realistic billable hours

Billable time is lower than total working time because running a freelance business takes unpaid time. Review a few months of your own calendar or time records. Count sales calls, proposals, bookkeeping, scheduling, learning and gaps honestly. Do not borrow a supposedly typical percentage: use evidence from how you work.

Annual billable hours are H = h × w. Revisit this assumption first when the output feels surprising, because fewer billable hours spread the same revenue target across less sellable time.

Business expenses

Business costs sit outside the reserve arithmetic because they are deductible: first calculate planning net profit, then add annual business costs to reach the planning revenue target. Keep personal spending in the take-home target and business spending in costs so you do not count either twice.

Federal self-employment tax estimate

This page derives its planning share from two governed federal facts: the self-employment tax rate is 15.3% (not tax-year specific; last checked 2026-09-04, IRS) and the regular-method taxable share of net earnings is 92.35% (not tax-year specific; last checked 2026-09-04, IRS). In code, s_SE = rate × taxable share, currently displayed as 14.13%.

The filing and payment threshold used here is $400 (not tax-year specific; last checked 2026-09-04, IRS). The Social Security portion is not applied naively to unlimited income: its taxable maximum is $184,500 (tax year 2026; last checked 2026-09-04, SSA), while Medicare treatment differs. Every example below remains beneath that maximum.

Applying the reserve to full net profit is slightly conservative because one half of self-employment tax is deductible in figuring adjusted gross income; this page does not model that deduction.

Income-tax planning reserve

Choose i, the share of planning net profit you want to set aside as an income-tax planning reserve. It is your own planning assumption, not a calculation of income-tax liability. BizToolPath does not calculate your federal income-tax liability.

The planning expression requires s_SE + i < 1. If those shares add to one or more, the denominator is zero or negative and the method is invalid.

Adding a percentage to a target is not the same as reserving that percentage from the resulting base. To leave T after both shares, calculate planning net profit as P = T / (1 − s_SE − i). Check it by calculating P − (P × s_SE) − (P × i); the result should equal T.

Baseline and target planning rates

Calculate the two outputs in order:

1. H = h × w
2. P = T / (1 − s_SE − i) — planning net profit
3. R = P + E — planning revenue target
4. R / H — baseline planning rate
5. R × (1 + m) / H — target planning rate

The baseline planning rate covers the modelled target and costs. The target planning rate adds your chosen margin. Neither is a tax result or a price the market must pay.

Three hypothetical worked examples

Displayed dollar figures in the check steps are rounded to the nearest dollar, so independently rounded operands may differ by one dollar.

Hypothetical 1

Inputs: take-home $50,000; costs $6,000; 20 billable hours for 46 weeks; 18% example planning assumption for the reserve; 15% margin.

• H: 20 × 46 = 920 hours
• P: $50,000 ÷ (1 − 14.13% − 18%) = $73,670
• R: $73,670 + $6,000 = $79,670
• Baseline planning rate: $87/hour; target planning rate: $100/hour
• Check: $73,670 − $10,409 − $13,261 = $50,000

Hypothetical 2

Inputs: take-home $70,000; costs $10,000; 24 billable hours for 46 weeks; 22% example planning assumption for the reserve; 20% margin.

• H = 1104 hours; P = $109,597; R = $119,597
• Baseline planning rate: $108/hour; target planning rate: $130/hour
• Check: $109,597 − $15,486 − $24,111 = $70,000

Hypothetical 3

Inputs: take-home $90,000; costs $15,000; 28 billable hours for 44 weeks; 24% example planning assumption for the reserve; 20% margin.

• H = 1232 hours; P = $145,465; R = $160,465
• Baseline planning rate: $130/hour; target planning rate: $156/hour
• Check: $145,465 − $20,554 − $34,912 = $90,000

Billable-hours sensitivity

This table holds Hypothetical 2’s other inputs constant and changes only billable hours per week.

Signs your current rate may be too low

• You meet your billable target but cannot cover ordinary business costs.
• Taking normal time off makes the annual plan fail.
• Necessary unpaid work repeatedly pushes your total hours far beyond the plan.
• You cannot maintain the reserves you deliberately chose.
• Small delays, scope changes or quiet weeks erase the margin.
• Your skills, responsibility or client outcomes have grown while your rate has not been reviewed.

These signs prompt a review; they do not prove that a particular price is available in your market.

When the market will not pay the planning rate

First test the assumptions. Reduce costs that do not support the work, improve the share of time that is billable, narrow the service, improve delivery, or sell a clearer outcome. You can also change the take-home goal, working weeks or margin knowingly rather than letting reality change them silently.

Hourly versus project pricing may change how a client experiences the price, but it does not remove the underlying economics. Getting paid reliably also matters to cash flow. If credible buyers still will not pay enough, the uncomfortable conclusion may be that this work, in its current form and market, does not support the income you want. A useful plan should reveal that possibility, not hide it.

Boundaries and not tax advice

This planning method is not tax advice and is not a tax calculator. It does not calculate federal income-tax liability, state or local tax, filing-status effects, deductions, credits, other household income, entity-election effects or estimated payments. A qualified tax professional can address those individual circumstances.

Additional Medicare Tax is a boundary fact, not part of a universal effective self-employment-tax percentage here. Its rate is 0.9% (not tax-year specific; last checked 2026-09-04, IRS) and its filing-status thresholds are $250,000 married filing jointly; $125,000 married filing separately; $200,000 all other taxpayers (not tax-year specific; last checked 2026-09-04, IRS). Those thresholds are not inflation-indexed. The examples remain below the Social Security taxable maximum and do not model this additional tax.

Governed federal sources

These are governed factual inputs, not individualized tax advice. No extra federal rate or threshold is introduced by this page.

• Maximum earnings subject to the Social Security portion: $184,500. Authority: SSA. Effective: tax year 2026. Last checked: 2026-09-04. Direct official source. The Social Security portion is subject to this taxable maximum; Medicare treatment differs.
• Self-employment tax rate: 15.3%. Authority: IRS. Effective: not tax-year specific. Last checked: 2026-09-04. Direct official source; supporting official source. Composed of 12.4% Social Security and 2.9% Medicare.
• Self-employment taxable share under the regular method: 92.35%. Authority: IRS. Effective: not tax-year specific. Last checked: 2026-09-04. Direct official source; supporting official source
• Self-employment tax filing and payment threshold used by this article: $400. Authority: IRS. Effective: not tax-year specific. Last checked: 2026-09-04. Direct official source; supporting official source
• Additional Medicare Tax rate: 0.9%. Authority: IRS. Effective: not tax-year specific. Last checked: 2026-09-04. Direct official source
• Additional Medicare Tax thresholds: $250,000 married filing jointly; $125,000 married filing separately; $200,000 all other taxpayers. Authority: IRS. Effective: not tax-year specific. Last checked: 2026-09-04. Direct official source. These thresholds are not inflation-indexed.