Why freelance rates need to be higher than salary
A salary is not the same thing as spendable income. Employees typically receive payroll withholding, employer contributions, and benefits through a structure that hides some costs from the hourly comparison. A freelancer receives the gross payment but has to reserve money for federal income tax and self-employment tax, which covers both sides of Social Security and Medicare under the existing 1099Calc model.
Freelancers also fund benefits directly. Health insurance premiums and retirement savings can be meaningful annual costs, so this calculator lets you add them on top of the gross income needed to reach your take-home target. The result is not saying those inputs are taxes; it is showing the revenue your business needs before paying those personal financial goals.
Time is the other major difference. A year may contain roughly 240 working days, but not every day or hour can be billed. Marketing, proposals, bookkeeping, client communication, professional development, holidays, and gaps between projects all consume capacity. The utilization input turns that reality into billable hours instead of pretending every available hour becomes revenue.
The solver starts with your target take-home and uses a binary search to find the gross income where gross income minus the existing federal income-tax and self-employment-tax functions reaches that target. It then adds health insurance and retirement savings, and divides by billable hours. This handles progressive federal brackets without duplicating their thresholds.
Hourly pricing is only one way to sell work. A project fee can be better when the scope is clear or when your efficiency creates value, but an internal hourly equivalent helps you test whether the project covers taxes, benefits, non-billable time, and business risk. State taxes, ordinary business expenses, credits, and changing income can all move the real number. Use the State Tax Comparison separately and treat this result as a planning starting point.
Review your rate when your utilization, costs, or target changes. A CPA or tax professional can help you account for deductions, state rules, and the specifics of your business before you rely on a quote or annual budget.