How to use it
- Type the Income you want to keep per year and the Yearly business costs.
- Type the Share of income set aside for tax, as a percent of what you bill.
- Type the Billable hours a day and the Billable days a year you expect to bill.
- Read Hourly rate and Day rate, then open Steps of the calculation to check the sum.
How the rate is worked out
The rate starts from the income you want to keep. Tax and your business costs come out of what you bill, so the income to bill is larger than the income you keep. The hourly rate divides that figure by the hours you can bill in the year.
The day rate divides the same figure by the billable days, so a day at the day rate pays the same as the hours at the hourly rate, apart from rounding.
Income to bill = (income to keep + business costs) ÷ (1 − tax share)
Hourly rate = income to bill ÷ (billable hours a day × billable days a year)
Day rate = income to bill ÷ billable days a year
Set aside for tax = income to bill × tax share- Use the tax share you expect to pay, and update it when your income changes.
- Count only the hours a client pays for. Unpaid work such as admin, sales and training is not billable.
Why set aside money for tax
The IRS, the US tax agency, says that people in business for themselves generally need to make estimated tax payments. The year is divided into four payment periods, and each has its own due date. If too little tax is paid through withholding and estimated payments, a penalty may be due.
This is the US rule. Other countries have their own rules on self-employed income, so check the rules that apply to you before you choose a tax share.
What this calculator does not include
- Tax brackets, deductions and the actual tax on your profit. The tax share stands in for them.
- Holidays, sick days and slow weeks. They are part of the days a year you enter, so the figure should be lower than the working days.
- Fixed-price projects. The rate is a time price; a project quote needs its own estimate of the days the work takes.
Worked example: 60,000 to keep, 6,000 of costs, 25% tax, 6 hours for 220 days
Income to bill = (60,000 + 6,000) ÷ (1 − 0.25) = 88,000.00. The year has 6 × 220 = 1,320 billable hours, so the hourly rate is 88,000 ÷ 1,320 = 66.67. The day rate is 88,000 ÷ 220 = 400.00. The amount set aside for tax is 88,000 × 25% = 22,000.00.
The hourly rate is rounded to the cent, so six hours at 66.67 come to 400.02, two cents more than the day rate. The day rate is worked out from the year and is the exact figure.
| Amount | |
|---|---|
| Income to bill per year | 88,000.00 |
| Set aside for tax | 22,000.00 |
| Hourly rate | 66.67 |
| Day rate | 400.00 |
Frequently asked questions
Why is my hourly rate higher than my hourly pay as an employee?
Freelance work has to pay for your own time off, your business costs and your tax, so the rate must cover those as well as the income you keep. The calculator adds them on top of the income you want.
Should I enter gross or net income?
Enter the amount you want to keep after tax and business costs, because the calculator adds both back. If you enter a gross figure, the rate comes out too high, since tax is added on top of it again.
How many billable days should I use?
Count the days a client pays for, not every working day. Days for admin, marketing, holidays and sick leave are not billable, so the figure is usually well below the 260 weekdays of a year.
Does the tax share depend on my country?
Yes. Tax rules and rates differ by country and by income, so the share is your own figure. This calculator does not apply any country's tax rules.
Can I use the day rate for a fixed-price project?
A day rate is a time price. For a fixed-price project, estimate the days the work takes, multiply by the day rate, and add any margin you want for risk.
Sources
Figures and text last checked on Thursday, November 12, 2026.