Most new freelancers pick a rate by guessing, or by copying their old salary divided by 2,080 hours. Both approaches leave money on the table, because employees don't pay for their own taxes, software, health insurance, or unpaid admin time. You do. Here's a formula that accounts for all of it.
The formula
Hourly rate = (target income + annual overhead) ÷ billable hours ÷ (1 − tax set-aside)
Let's walk through each piece with real numbers.
Step 1: Set your target income
Say you want to take home the equivalent of a $70,000 salary. That's your starting point — not your ending point.
Step 2: Add your overhead
Freelancers commonly pay for things an employer used to cover. A typical solo setup: health insurance ($6,000/yr), software and subscriptions ($1,200), laptop and equipment amortized ($800), coworking or home office costs ($1,800), professional development ($500). That's roughly $10,300 per year before you've earned a dollar.
Step 3: Count only billable hours
A 40-hour week is not 40 billable hours. Between proposals, invoicing, email, and marketing, most freelancers bill 50–60% of their working time. Assume 25 billable hours per week and 46 working weeks (allowing for holidays, sick days, and dry spells): 1,150 billable hours per year.
Step 4: Account for self-employment tax
In the US, self-employed people pay both halves of Social Security and Medicare — 15.3% self-employment tax on top of income tax. A common rule of thumb is to set aside 25–30% of gross income for taxes.
Putting it together
($70,000 + $10,300) ÷ 1,150 hours = $69.83/hr. Adjust for a 28% tax set-aside: $69.83 ÷ 0.72 = ~$97/hr.
That's why "I made $70k as an employee, so I'll charge $35/hr" is a fast track to burnout. The freelancer doing the same work needs to bill nearly triple the employee's hourly wage to net the same take-home pay.
Quick gut checks
If clients accept your rate instantly and never negotiate, you're probably underpriced — try raising it 15–20% on the next proposal. If you're booked solid more than 6 weeks out, raise rates for new clients. And consider project pricing once you're fast at your craft: if a logo takes you 6 hours at $97/hr, quoting a flat $900 often lands better than an hourly bill.
Track it, don't guess it
The formula only works if you know your real overhead, your real billable hours, and what to set aside for taxes each quarter. The Freelancer Finance Pack ($19) tracks income and expenses, estimates your quarterly tax set-aside automatically, and includes a professional invoice template — so your rate is based on your actual numbers, not a guess. Use code LAUNCH20 for 20% off through August 15, 2026.
Disclaimer: This article is for general information only and is not tax or financial advice. Tax rules vary by location and situation — consult a qualified tax professional for advice specific to you.