How to estimate state taxes for freelancers?

ByRobert

Freelancing gives you freedom, but it also puts you in charge of taxes that most employees never think about. One of the biggest questions new freelancers ask is: “How do I figure out state taxes when no one is withholding them for me?”Here’s a clear, step-by-step way to estimate your state taxes so you can budget confidently, avoid penalties, and keep more of your income.

Why Freelancers Need to Plan for State Taxes

When you work for yourself, you don’t get a paycheck with state income tax already deducted. That means you’re responsible for knowing:

  • If your state charges income tax (some states like Texas or Florida don’t).
  • How your state’s tax brackets work (flat rate vs progressive).
  • Whether local or city taxes apply (like New York City).

Not planning ahead can leave you with a big surprise bill in April—or worse, penalties for underpayment.

Step 1: Find Out Your State’s Rules

Each state sets its own income tax laws. Start by checking:

  • Does your state tax personal income?
  • Is the tax flat (one rate for all) or progressive (higher income = higher rate)?
  • Are there deductions or credits for small business owners or self-employed workers?

👉 Most state revenue department websites have tax rate charts or calculators you can use.

Step 2: Estimate Your Freelance Income

Look at how much you expect to earn this year from all sources:

  • Client payments
  • Gig work or side hustles
  • Online sales or royalties

If your income varies, use your average monthly income × 12 to get a yearly estimate.

Step 3: Subtract Deductions to Find Taxable Income

You only pay tax on your taxable income, not your gross income. Common deductions freelancers can claim include:

  • Home office space
  • Internet and phone bills
  • Software and subscriptions
  • Travel or mileage for work
  • Professional fees (accounting, legal, courses)

Keeping receipts and records makes this step much easier at year-end.

Step 4: Apply Your State’s Tax Rate

Once you know your taxable income, apply your state’s tax rate.

Example:

  • Income: $70,000
  • Deductions: $10,000
  • Taxable income: $60,000
  • State tax (if 5% flat rate): $3,000

For progressive systems, apply each rate to the correct income bracket.

Step 5: Don’t Forget Federal and Self-Employment Taxes

Even if your state tax feels manageable, don’t ignore federal obligations:

  • Federal income tax (based on IRS brackets).
  • Self-employment tax (about 15.3% for Social Security and Medicare).

A simple rule of thumb many freelancers use: set aside 25–30% of your income for taxes overall.

Step 6: Pay Quarterly to Stay Ahead

Most states (and the IRS) expect quarterly estimated payments:

  • April 15
  • June 15
  • September 15
  • January 15 (of the next year)

Paying quarterly helps you avoid penalties and keeps cash flow smoother.

Example: California Freelancer

  • Gross income: $80,000
  • Deductions: $15,000
  • Taxable: $65,000
  • State tax (progressive rates): about $6,000
  • Divide into four payments: ~$1,500 each quarter

This way, you’re never hit with a surprise bill in April.

Tools to Make It Easier

  • IRS Form 1040-ES for federal estimates
  • Your state’s tax calculator or online tool
  • Apps like Keeper, QuickBooks, or Everlance for tracking and auto-estimating
  • A spreadsheet or budgeting app for setting aside tax money each month

FAQs

Do freelancers always pay state income tax?
Only if you live in a state that charges it. Seven states have no income tax.

What if I work with clients in different states?
Usually, you pay income tax where you live, not where your clients are located.

Can I avoid penalties if I underpay?
Yes—many states follow IRS “safe harbor” rules: pay at least 90% of what you owe, or match last year’s payment.

How much should I set aside monthly?
A common rule: 25–30% of your income. Adjust if your state has no income tax.

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