Guides / Pricing

How to Calculate Your Freelance Hourly Rate (Step by Step)

Last updated: October 23, 2026. Educational content only, not tax advice.

Most new freelancers set their prices by looking at what a competitor charges or by dividing a desired salary by 2,080 hours. Both approaches usually lead to a rate that is too low. A reliable freelance rate starts from your own numbers: the income you want, the costs you carry, the taxes you owe, and the hours you can actually bill. This guide walks through each step with a worked example.

The basic formula

Your minimum hourly rate is your required gross revenue divided by your billable hours for the year. Required gross revenue is your net profit plus business overhead plus health and retirement costs. Net profit, in turn, has to be large enough to cover your take-home goal and your taxes. In short: rate = (take-home goal + taxes + overhead + benefits) ÷ billable hours.

Step 1: Choose your take-home income goal

Decide how much you want to keep each year after business costs and taxes. A useful starting point is your current or desired salary, or what your household needs to cover expenses plus savings. Be honest here. An inflated goal makes your rate unrealistic, and a low one means you will feel underpaid within months.

Step 2: Add your overhead

List every yearly cost of running your business: software subscriptions, equipment, liability insurance, accounting, banking and payment fees, coworking space, marketing, and training. Add a typical month and multiply by twelve, then include occasional costs such as a new laptop spread across the years you will use it.

Step 3: Include health and retirement

Employees often receive health insurance and a retirement match. As a freelancer, you pay for these yourself, so they belong in your price. Include premiums, expected out-of-pocket costs, and the retirement contributions you plan to make.

Step 4: Count your real billable hours

Start with 52 weeks and subtract vacation, holidays, sick days and slow weeks. Then decide how many hours per week you can bill. Many solo freelancers bill 20 to 30 hours in a working week, because sales, invoicing, email and learning take the rest. If you are unsure, track your time for a month before choosing a number. For example, 5 weeks off and 25 billable hours per week gives 47 × 25 = 1,175 billable hours a year.

Step 5: Account for taxes

Freelancers pay income tax plus self-employment tax. Self-employment tax is 15.3%, applied to 92.35% of net earnings, with the Social Security portion capped at an annual wage base. Half of it is deductible when you calculate income tax. Because tax is charged on profit, you cannot simply add a percentage to your goal. You need to work out how much profit leaves you with your target after both taxes. Our 1099 vs. W-2 tax guide explains the math in detail, and the calculator handles it automatically.

Step 6: Divide to get your rate

Take the required gross revenue and divide by your billable hours. Here is an example using these inputs: an $80,000 take-home goal, $6,000 overhead, $9,000 in health and retirement costs, 25 billable hours a week, five weeks off, and a 22% income tax rate. The estimate comes out to roughly $137,000 of gross revenue, which across 1,175 billable hours is about $117 per hour. A salaried job paying the same take-home would pay around $114,000 a year, or close to $55 an hour on 2,080 paid hours. Your results will differ, so use the calculator with your own figures.

Common mistakes to avoid

• Using 2,080 hours. Employees are paid for holidays, sick days and meetings. You are not.
• Ignoring self-employment tax. It is roughly double the payroll tax an employee pays out of each paycheck.
• Forgetting unbillable time. Proposals, bookkeeping and client calls are real work without an invoice.
• Setting no buffer. Late payments and gaps between clients are normal. Many freelancers add 10% to 20% on top of their minimum.
• Never revisiting the rate. Costs, taxes and your skills change. Review annually.

Sanity-check your number against the market

Once you have your minimum, compare it with what clients in your field and region pay. If your minimum is far above the market, you can reduce overhead, raise your billable hours, specialize in higher-value work, or move toward project or retainer pricing that rewards results rather than time. If your minimum is well below the market, you may have room to charge more than you need. Your minimum rate is a floor, not a price list. See our FAQ for more on raising rates and choosing between hourly, project and retainer pricing.

These figures are estimates for planning purposes. Tax rules vary by state and personal situation, so consider consulting a licensed CPA or enrolled agent.