How To Calculate Your Freelance Hourly Rate After Taxes And Expenses

Copying a salary into an hourly rate is the classic freelance mistake, because a salary hides everything an employer used to absorb: taxes, software, insurance, quiet months and the hours nobody pays for. A workable rate starts from what you want to take home and works forward through those costs.

One Simple Model

Here's a model you can run on paper. Start with the take-home you want for the year and add your annual business expenses. Gross that up for taxes: if you set aside a percentage for tax, divide by one minus that percentage. Add a profit buffer on top, a margin for slow months and surprises.

Then divide by your billable hours for the year: billable hours per week times the number of weeks you work. As a hypothetical example, 25 billable hours across 48 working weeks is 1,200 billable hours, and a $140,800 billing target over 1,200 hours lands near $117 an hour. Change any input and the rate moves; that's the point of a model.

Two cautions about the model's edges. The tax input is a set-aside percentage you choose, not a calculation of your actual tax liability; real taxes depend on your country, structure, deductibility and brackets, so treat the percentage as your own planning number. And billable hours are the hours clients pay for, not the hours you work.

Read It As A Floor Estimate

What the model gives you is an estimated floor: below that rate, the plan you typed in doesn't fund itself. It's neither a market price nor a guarantee - every input is an assumption. Clients may pay more, and some work isn't hourly at all; the floor is a reference line for decisions, not a ceiling on what you charge.

Re-run it when an input changes: different expenses, more time off, a different take-home goal. The value is in seeing what each change does to the number.

Run Your Numbers

The Freelance Rate Calculator on DigitalDecided implements exactly this model: (take-home plus expenses, grossed up by the tax set-aside, plus the buffer) divided by (weekly billable hours times working weeks). It shows the annual billing target, then an hourly rate, a day rate at 8 hours and a week rate at your stated billable hours, in US dollars.

Its defaults are illustrative, not norms: swap in your own hours, weeks off and set-aside, and read the result as the estimate it is.