The most common question we get from people who just went self-employed in New York City: how much of each payment should I put aside for taxes? Nobody withholds anything for you anymore, so the answer matters. Get it wrong and you face a large bill in April plus an underpayment penalty.
The short answer: 25% to 35% of every payment
For most NYC freelancers and sole proprietors earning between $40,000 and $150,000 of profit, setting aside 25% to 35% of every 1099 payment covers federal, New York State and New York City tax. Closer to 25% if your profit is modest or you also have a W-2 job with withholding; closer to 35% if your profit is high or you have no other withholding.
Where that money goes
| Tax | Roughly | Notes |
|---|---|---|
| Self-employment tax (Social Security + Medicare) | about 14% of profit | 15.3% on 92.35% of your net profit. This is the one that surprises people. |
| Federal income tax | 10% to 24% | Depends on your total income. Half of the self-employment tax is deductible. |
| New York State income tax | about 4% to 6.85% | Most middle incomes land around 5% to 6%. |
| New York City income tax | about 3% to 3.9% | Only if you live in the five boroughs. |
That is profit, not gross. Business expenses you can deduct (home office, equipment, software, part of your phone and internet, business travel) lower every line above, which is why tracking them from day one is worth real money.
A common example
Take a typical case: someone moves from a W-2 job to 1099 contract work partway through the year. The W-2 job withheld tax, but the new contract payments have nothing taken out, and months go by with no estimated payments. Often most of what is owed for the year was already covered by her earlier withholding, and that one estimated payment in January can protect against further penalties. Catching it in the fall instead of April avoids a surprise and most of the penalty.
When to pay
Estimated taxes are due four times a year: April 15, June 15, September 15 and January 15 of the following year. New York State and City estimates are paid together on the same dates. Missing one does not mean you are in trouble, but the penalty grows the longer the balance sits, so pay as soon as you notice.
The safe harbor that protects you
You will not owe an underpayment penalty if your withholding and estimates for the year add up to at least 100% of last year's total tax (110% if last year's income was over $150,000), even if you end up owing more in April. In your first year of self-employment this is often the easiest target to hit, because last year's tax is a known number.
Practical setup
- Open a separate savings account and move 30% of every payment into it the day it arrives.
- Keep receipts and a simple expense list by month.
- Pay the quarterly estimate from that account; whatever is left over in April goes toward the return.
If you want the exact number instead of a range, we calculate your federal, New York State and NYC estimates as part of our personal tax service, with quarterly planning for $200 a year.