~2 min read
Setting a freelance rate without a systematic calculation is one of the most common ways freelancers undercharge. The number you need is not your old salary divided by 2,080 — it's that number plus taxes, plus business expenses, plus an adjustment for the fact that you probably can't bill every hour you work.
This calculator starts with your annual income target and works backwards to the minimum hourly rate you must charge to hit it, accounting for all three factors:
1. Non-billable time. Responding to emails, writing proposals, doing accounting, and professional development all take time you can't bill clients for. Most freelancers bill 60–70% of their working hours.
2. Taxes. Self-employed individuals pay income tax plus self-employment tax (Social Security + Medicare in the US ≈ 15.3%) on top of it, because employers normally pay half the payroll tax on behalf of employees. As a freelancer, you pay both halves.
3. Business expenses. Software subscriptions, equipment, office space or co-working, health insurance, professional development, and accounting fees all reduce the revenue that's left for you after expenses.
Frequently asked questions
Why does my "real rate" feel so much higher than what employees earn? Because it is. A full-time employee earning $100k costs their employer ~$130–145k in total compensation (benefits, payroll taxes, equipment, office). As a freelancer you're covering all of that yourself, plus bearing the risk of non-billable time and income gaps between clients.
Should I ever charge below my minimum rate? For a strategic client that provides portfolio pieces, referrals, or opens doors to higher-rate work, temporarily discounting is a valid business decision — but do it consciously, not because you forgot to account for taxes.
How do I raise my rate with existing clients? Give 60–90 days notice, anchor to value ("my rate is increasing to $X because I'm now delivering Y"), and hold the line. Most clients who stay at the new rate end up being more respectful of your time.