# How to calculate your freelance hourly rate: formula and example

Your minimum hourly rate is the revenue you need in a year divided by the hours you can really bill. In the example below that is $89.05 per hour.

## The formula in four steps

- **Set your take-home goal:** what should be left each year after taxes, health insurance and retirement?

- **Find the profit you need:** taxes, health insurance and retirement contributions come on top of the take-home pay. Income tax is due on profit, not on revenue.

- **Add business expenses:** profit plus expenses is the revenue you need, plus a buffer if you want one.

- **Divide by billable hours:** not by all working hours, only by those you can charge for.

        **Hourly rate = (take-home pay + taxes + health insurance + retirement + business expenses) ÷ billable hours per year**

## Worked example

With the default assumptions your minimum rate is $89.05 per hour: $97,333 of revenue spread over 1,093 billable hours.

Assumptions: $5,000 take-home pay per month, single filer, 5 days of 8 hours, 15 vacation, 8 holiday, 5 sick and 5 training days, 60% billable, $450 health insurance and $500 retirement per month, 4% state tax.

| Item | per year |
| --- | --- |
| Take-home pay | $60,000 |
| Federal income tax | $5,403 |
| Self-employment tax | $13,131 |
| State income tax | $2,999 |
| Health insurance | $5,400 |
| Retirement contributions | $6,000 |
| Business expenses | $4,400 |
| Revenue needed | $97,333 |
| Billable hours | 1,093 |
| Minimum hourly rate | $89.05 |

        As a day rate at 8 hours that is $712.

## Three example profiles

The same method gives $109.83, $93.50 or $130.72 per hour depending on goal, billable share and buffer.

These profiles are illustrations of the calculation, not market prices. Everything not listed is at its default (single filer, 4% state tax, $450 health insurance, $500 retirement per month, $4,400 expenses a year).

| Profile | Take-home per month | Billable share | Buffer | Hourly rate | Day rate |
| --- | --- | --- | --- | --- | --- |
| Starting out | $3,500 | 40% | 10% | $109.83 | $879 |
| Established freelancer | $5,000 | 60% | 5% | $93.50 | $748 |
| Specialist with a full pipeline | $8,000 | 70% | 10% | $130.72 | $1,046 |

        Someone starting out needs a high rate to compensate for a low billable share, which is why undercutting at the beginning is the most common way to end up with no margin.

## What moves your rate the most

The billable share and your take-home goal move the rate the most; a single change to expenses or health insurance matters less.

Starting from the default rate of $89.05, changing one input at a time:

| Change | Hourly rate | Difference |
| --- | --- | --- |
| Take-home goal +10% ($5,500 per month) | $96.93 | +8.9% |
| Billable share 50% instead of 60% | $106.86 | +20.0% |
| Billable share 70% instead of 60% | $76.33 | −14.3% |
| Health insurance +$200 per month | $91.64 | +2.9% |
| Expenses +$5,000 per year | $93.62 | +5.1% |
| No state income tax (0%) | $85.48 | −4.0% |
| State income tax 8% | $93.00 | +4.4% |
| Buffer 10% | $97.95 | +10.0% |

        Use this list to decide where effort pays off: raising the billable share by ten points is worth more than most expense savings.

## Five common mistakes

The most expensive mistake is dividing by all working hours instead of billable hours; the other four are smaller but add up.

- **Dividing by all working hours.** Pitching, bookkeeping, vacation and sick days are not billable. In the example only 1,093 of 1,822 hours remain.

- **Forgetting self-employment tax.** You pay both halves of Social Security and Medicare: $13,131 in the example.

- **Calculating tax on revenue.** Expenses reduce your profit, and profit is what is taxed.

- **Leaving out health insurance and retirement.** Nobody pays them for you.

- **Planning without a buffer.** Late payments and slow weeks otherwise come out of your take-home pay.

## Minimum rate and market rate

The calculated rate is your **floor**: below it the work does not pay for you. What your market bears depends on your field, experience and demand. Compare your minimum with what is common for your service and plan a markup if the market allows it.

## Frequently asked questions

### How do I calculate my hourly rate as a freelancer?

Divide the revenue you need per year by your billable hours per year. Revenue comes from your take-home goal, taxes, health insurance, retirement and expenses. In the example: $97,333 ÷ 1,093 hours = $89.05.

### How many hours can a freelancer bill per year?

It depends on your working days, time off and billable share. A common rule of thumb is 50 to 70 percent of working time. The calculator subtracts vacation, holidays, sick and training days first.

## Sources

- [IRS: Tax inflation adjustments for tax year 2026](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill)
- [IRS: Self-employment tax (Social Security and Medicare taxes)](https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes)
- [IRS: Estimated taxes](https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes)

Updated October 2026. Simplified estimate, not tax or legal advice.