How Much Should I Charge as a Freelancer? The Rate Formula That Covers Taxes, Time Off, and Profit
Updated September 2026. Educational information, not financial or tax advice.
How much should I charge as a freelancer: more than your old salary's hourly rate, because a salary hides costs you now pay yourself. If your last job paid $50 an hour, the instinct is to charge $50 an hour. That instinct will quietly bankrupt you.
Here is the short answer: a $50-an-hour salary is really about $95 an hour in freelance rates. Not because freelancers are greedy. Because a salary hides three costs, taxes you now pay yourself, benefits you now buy yourself, and hours you work but cannot bill, and your rate has to cover all three, plus a profit margin.
The formula below walks through each one with real numbers. Every assumption is stated, so you can swap in your own figures.
Key numbers
- $50-an-hour salary = ~$95-an-hour freelance rate ($95.54 in the worked example).
- Self-employment tax: 15.3% on 92.35% of profit (~14.1% effective) vs 7.65% FICA as an employee: starting from the first $400 of net earnings.
- BLS: employer benefit costs = 29.8% of total compensation ($13.58/hr against $45.65, June 2025).
- Billable hours: 26 hrs/week × 52 = 1,352 (65% utilization); the naive $104,000 ÷ 1,352 = $76.92/hr: the salary number is wrong before taxes even enter.
- Four unpaid weeks off drops billable hours to 1,248 and pushes the rate to $103.51/hr.
What is the formula for calculating a freelance hourly rate?
Start with the annual salary equivalent ($50/hr × 2,080 = $104,000). Set your take-home target. Gross up for self-employment tax: 15.3% on 92.35% of profit, about 14.1% effective, versus 7.65% as an employee. Add benefits replacement (the BLS puts employer benefit costs at 29.8% of total compensation). Divide by billable hours, not 2,080, then add profit.
- Annual salary equivalent. Multiply the hourly wage you are replacing by 2,080 (40 hours × 52 weeks). $50/hr becomes $104,000 a year.
- Set your take-home target. An employee loses part of that to income tax plus 7.65% FICA before it ever hits the bank. Figure out the take-home number you are actually trying to match.
- Gross up for self-employment tax. Freelancers pay both halves of Social Security and Medicare: 15.3% on 92.35% of profit: about 14.1% effective: versus 7.65% as an employee. Half of it is deductible from income, which softens the blow but does not remove it. (IRS)
- Add benefits replacement. Health insurance, retirement savings, paid time off: all on you now. The Bureau of Labor Statistics puts employer benefit costs at 29.8% of total compensation for private-industry workers. You will not replicate every line of that, but the big two alone run into five figures a year. (BLS)
- Divide by billable hours, not 2,080, then add profit. A business that prices at cost is a hobby with invoices. Ten to twenty percent margin is the buffer that covers dry months.
How much should a freelancer charge if their old salary was $50 an hour?
About $95 an hour. The walk-through, with every assumption stated up front: $50 × 2,080 = $104,000 to replace; a $74,880 take-home target (the employee loses a combined ~28% to income tax and 7.65% FICA); grossed up for ~20% income tax plus 14.13% self-employment tax (15.3% × 92.35%) = $113,674; plus a $6,000 health plan and $9,500 in retirement savings = $129,174; divided by 1,352 billable hours (26 a week × 52 weeks at 65% utilization: the rest goes to admin, marketing, proposals, and downtime) = $95.54/hr. The $50 salary nearly doubled from math, not greed.
- Salary to replace: $50 × 2,080 = $104,000
- Take-home target: $104,000 × (1 − 0.28) = $74,880
- Gross up for freelancer taxes: 20% + 14.13% = 34.13%, so $74,880 ÷ (1 − 0.3413) = $113,674
- Benefits replacement: $113,674 + $6,000 + $9,500 = $129,174
- Hourly rate: $129,174 ÷ 1,352 billable hours = $95.54/hr
About $95 an hour. The $50 salary did not double because of greed. It nearly doubled because of math: fewer billable hours, both halves of payroll tax, and benefits you fund yourself.
Notice how much damage the billable-hours step does on its own. Even the naive version stings: $104,000 ÷ 1,352 = $76.92/hr. You cannot bill every hour you work, so the salary number is already wrong before taxes enter the picture.
And time off is not free: it is priced into the rate or it comes out of your savings. Those 1,352 hours assume you bill 26 hours every single week of the year. Take four unpaid weeks off and you are down to 1,248 billable hours, which pushes the same $129,174 target to $103.51/hr.
Why do most freelancers undercharge?
Three leaks. Non-billable hours: 50 to 65% utilization is realistic in year one: proposals, invoicing, email never bill. The second half of payroll tax: 15.3% on 92.35% of profit, starting from the first $400 of net earnings. Benefits: health insurance and retirement alone justify a large markup. Price them in or retire on vibes.
Leak 1: non-billable hours. Proposals, invoicing, email, chasing late payments, learning new tools: none of it bills. New freelancers often assume 80% utilization or better; 50 to 65% is realistic in year one. Every unbillable hour raises the rate the billable ones must carry.
Leak 2: the second half of payroll tax. As an employee, 7.65% FICA disappears before you ever see it, and your employer matches it silently. As a freelancer, you pay the full 15.3% on 92.35% of profit, starting from the first $400 of net earnings. Half is deductible from your income, which helps at tax time but does not change what your rate must cover.
Leak 3: benefits. That 29.8% BLS figure covers paid leave, insurance, retirement, and legally required benefits. You will skip some lines, nobody buys themselves workers' comp, but health insurance and retirement alone justify a large markup on the salary number. Price them in or retire on vibes.
Should a freelancer bill hourly or by project?
Either: once you know your hourly floor ($95 in the example). For projects: estimate the hours honestly, multiply, then add 15 to 25% for revisions and scope creep. Never quote below the floor to win a client: a client who needs you at $60 an hour when your floor is $95 is paying you to go broke slowly.
Fixed pricing has one real advantage: efficiency gains are yours to keep. Finish a 10-hour project in 7 and your effective rate rises. Hourly billing punishes speed. Either way, the floor is the floor.
How often should a freelancer raise their rate?
Once a year. Costs move, health premiums rise, tax brackets shift, and your skills get sharper, so re-run the formula and add the profit margin on purpose, not as an afterthought. Ten percent on $129,174 is about $12,900: the buffer for dry months, new equipment, and the reality that freelance income arrives in lumps. A rate with no margin is a rate with no future.
If you would rather not rebuild the spreadsheet yourself, the Freelancer Rate Calculator (US) runs this whole formula with your own numbers, salary target, billable hours, tax rates, and benefits, and shows the rate instantly.
Setting the rate is only half the job. The IRS also wants its cut four times a year, so read the freelancer quarterly taxes guide before your first estimated payment. And if you are still deciding between freelancing and a second W-2 job, run the real math on a second paycheck first: the comparison is closer than it looks. Pricing in Canadian dollars instead? The Canadian version of this formula runs the same five steps with CPP both halves and 2026 Canadian figures.
How much should I charge as a freelancer: best rate formulas for 2026
The best freelance rate formulas in 2026 share one insight: a salary hides costs that land on you the month you go solo, so the rate must be built bottom-up, not guessed from vibes. The salary-replacement formula in this article is the most reliable starting point; value-based pricing comes later, once you know your floor. Never quote below that floor.
Sources
Each source below was opened and verified on September 25, 2026:
- Internal Revenue Service, "Understanding Taxes: Tax Tutorial: Payroll Taxes and Federal Income Tax Withholding" (https://apps.irs.gov/app/understandingTaxes/hows/tax_tutorials/mod14/tt_mod14_08.jsp): the 15.3% self-employment tax rate (12.4% Social Security + 2.9% Medicare), the 92.35% factor, the $400 net-earnings threshold, the one-half deduction from income, and the pay-as-you-go requirement.
- Internal Revenue Service, "FAQs: Estimated Tax for Individuals" (https://www.irs.gov/faqs/estimated-tax/individuals): the $1,000 threshold that triggers quarterly payments and the pay-as-you-go rule for self-employment income.
- U.S. Bureau of Labor Statistics, "Employee benefits cost employers $13.58 per hour for private industry workers in June 2025" (September 24, 2025) (https://www.bls.gov/opub/ted/2025/employee-benefits-cost-employers-13-58-per-hour-for-private-industry-workers-in-june-2025.htm): benefit costs of $13.58 per hour against $45.65 total compensation (29.8%) for private-industry workers, June 2025.
For the freelancer money system behind the rate, paying yourself first from every invoice, Profit First is the book. Find it on our recommended reading shelf.
About Kollaz: Kollaz makes smart financial tools for modern money. This article's companion is the Freelancer Rate Calculator (US) spreadsheet: plug in your salary target, billable hours, and tax rates, and it computes the hourly rate that actually covers everything.
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