To Take Home $90,000 Freelancing, You Need to Bill $132.76 an Hour
Dividing your target salary by 2,080 hours produces $43.27 and a business that fails within two years. Here is the full calculation, including the two costs that employees never see and the hours you cannot bill.
The most common way to set a freelance rate is to take the salary you want, divide by 2,080 working hours in a year, and add a bit. On a $90,000 target that produces $43.27 an hour. It is also roughly a third of what you actually need to charge.
The calculation misses three things: you cannot bill every hour, you pay both halves of payroll tax, and you now fund everything an employer used to fund. Here is what each costs.
You cannot bill 2,080 hours
Employees are paid for attending. Freelancers are paid for delivering. The hours spent on proposals, invoicing, chasing late payments, marketing, bookkeeping, software administration, and professional development are all real and none are billable.
A realistic billable ratio for an established solo freelancer is around 60%. Subtract holiday, public holidays, and some allowance for illness, and a full year yields roughly 1,048 billable hours rather than 2,080. That single correction nearly doubles the required rate before any tax or cost is considered.
You pay both halves of payroll tax
As an employee, Social Security and Medicare contributions are split with your employer, and you only ever see your half on the payslip. Self-employed people pay both halves, combined into the self-employment tax at 15.3% on net earnings, with a partial offset from the deduction of half of it.
On the figures below that is $17,679.94, an amount that simply does not exist in an employee's mental model of their own cost.
You fund what the employer used to fund
Health insurance, retirement contributions, equipment, software, professional liability insurance, accounting fees, and professional development all move onto your books. Fourteen thousand dollars a year is a conservative figure for a solo professional, and it is easily double that once family health coverage is involved.
The full calculation
| Amount | |
|---|---|
| Target take-home | $90,000.00 |
| Business overhead | $14,000.00 |
| Self-employment tax | $17,679.94 |
| Federal income tax | $17,447.49 |
| Gross billings required | $139,127.43 |
| Billable hours per year | 1,048 |
| Required hourly rate | $132.76 |
The naive calculation gave $43.27. The real figure is $132.76, slightly over three times higher. A freelancer charging $60 an hour and feeling reasonably well paid is, on these assumptions, billing $62,880 and taking home $38,506 before any state tax.
Adjusting it for your situation
Every input here is yours to change, and the two with the most leverage are not the tax figures.
- Billable ratio. Raising it from 60% to 70% cuts the required rate by roughly 14%. Retainer arrangements, repeat clients, and productised services all raise the ratio by reducing time spent selling.
- Overhead. This is genuinely variable. A freelancer on a spouse's health plan has a fundamentally different cost base from one buying individual coverage, and it can shift the required rate by twenty dollars an hour or more.
- State tax. The table covers federal only. A state income tax of 5% to 9% raises the required rate accordingly, and a handful of states levy additional taxes on business income.
- Target income. Working backwards from what you need, rather than forwards from what competitors charge, is the point of the exercise. Competitor rates tell you what the market bears, not what your business requires.
Pricing by value rather than by hour
The hourly figure is a floor and a diagnostic, not necessarily a price you quote. Hourly billing has a structural flaw: it penalises you for getting faster, since expertise that lets you deliver in six hours what once took twelve cuts your income in half.
Project and value-based pricing avoid this by charging for the outcome. The hourly calculation remains essential underneath, because it tells you whether a fixed-price project is worth taking. A $9,000 project that consumes 90 hours pays $100 an hour, which is below the floor above, and knowing that before you accept it is the entire point of running the number.
Three things that protect the rate
- Charge a deposit. Thirty to fifty percent up front filters out clients who were never going to pay and funds the work rather than financing it yourself.
- Put payment terms in writing, including late fees, and enforce them. Unpaid invoices are a cost that never appears in any rate calculation and sinks more freelance businesses than underpricing does.
- Set aside tax on receipt, not at the deadline. Move roughly 25% to 30% of every payment into a separate account the day it arrives. Self-employed people who treat gross receipts as income are the ones who cannot pay in April.
Frequently asked questions
Is a 60% billable ratio realistic?
It is a reasonable planning figure for an established solo freelancer with steady clients, and it is optimistic for anyone in their first year or two. Agencies typically target 60% to 75% for billable staff, but that is with dedicated people handling sales, invoicing, and administration. A solo freelancer does all of those personally. Tracking your own hours for a month is the only way to know your actual figure, and most people find it lower than they expected.
How does this compare to an equivalent salary?
A useful sanity check is that a freelance rate typically needs to be roughly 1.5 to 2 times the equivalent hourly salary to produce the same take-home, once unbillable hours, both halves of payroll tax, and self-funded benefits are counted. A $90,000 salaried role costs an employer considerably more than $90,000 once their payroll tax contribution, benefits, and equipment are included, and as a freelancer you are absorbing all of it.
Should I incorporate to reduce tax?
Possibly, above a certain income level. Electing S-corporation treatment can reduce self-employment tax by allowing you to split income between a reasonable salary, which is subject to payroll tax, and distributions, which are not. The savings only outweigh the additional accounting, payroll administration, and filing costs above roughly $80,000 to $100,000 of net income, and the salary must be genuinely reasonable for the work. This is a decision worth paying an accountant to model on your actual numbers.
What if my rate is above what clients will pay?
Then the market is telling you something, and there are only a few honest responses: reduce your target income, reduce your overhead, raise your billable ratio, or move to work that is valued more highly. What does not work is charging below your floor and hoping volume compensates, because volume is constrained by the same billable hours that produced the floor. Persistently discovering your required rate is unachievable usually indicates a positioning problem rather than a pricing problem.
Does this calculation include retirement savings?
Only to the extent you include it in overhead. The $14,000 figure covers insurance, equipment, software, and professional costs. If you want to contribute to a retirement account, add that on top, either as overhead or by raising the take-home target. Self-employed people have access to plans with high contribution limits, such as a SEP-IRA or solo 401(k), and forgetting to budget for them is a common omission in freelance rate calculations.
Disclaimer: This article is educational and does not constitute financial, investment, tax, or legal advice. Figures are illustrative and computed from the assumptions stated in the article; your own situation will differ. Verify any decision with a qualified professional before acting on it.