How it works
Most freelancers undercharge because they divide a salary by 2,080 hours. A freelance rate has to cover taxes, business costs, unpaid time off and the hours you can't bill.
Profit needed = take-home ÷ (1 − tax rate)
Revenue = (profit + business costs) × (1 + safety margin)
Hourly rate = revenue ÷ ((52 − weeks off) × billable hours a week)
Worked example
You want $60,000 a year after tax, spend $6,000 on the business, and set aside 30% for tax.
Profit needed: $60,000 ÷ 0.7 = $85,714. Add costs and a 10% margin: $100,886 in revenue.
With 6 weeks off and 25 billable hours a week, you have 1,150 hours to sell, so you need $87.73 an hour. Dividing by a salaried 2,080 hours with no margin would suggest just $44.09.
Things to know
- Billable hours are fewer than you think. Sales, admin, invoicing and learning take time. Many freelancers bill 20 to 30 hours in a 40-hour week.
- Self-employment tax. In the U.S. the self-employed pay both halves of Social Security and Medicare: 15.3% on most net earnings, on top of income tax. Your tax rate here should include it.
- Pay tax as you go. The IRS expects quarterly estimated payments if you'll owe $1,000 or more for the year.
- Benefits are on you. Health insurance and retirement savings belong in business costs or your take-home target.
Questions people ask
How do I turn an hourly rate into a project price?
Estimate the hours honestly, add 20–30% for revisions and communication, and multiply by your rate. Then sense-check the total against the value to the client.
Should I charge by the hour or by the day?
Day rates reward focused work and are simpler to invoice. Hourly suits small, unpredictable tasks. The calculator shows both.
Sources
Reviewed September 24, 2026 by The Dollars World team. How we build and check our calculators. This is general information, not financial advice.