Take a target of $80,000 in after-tax income, a combined tax rate of roughly 40.3 percent between income tax and self-employment tax, $5,000 a year in benefits and insurance, and $3,000 in business expenses. Divide $80,000 by 0.597, the share left after taxes, and you need about $134,000 in gross income before benefits and expenses even enter the picture. Add the $5,000 and $3,000 on top, then divide by 1,800 billable hours, and you land on roughly $79 an hour as the rate that actually gets you to your target, not the $44 an hour you would get from naively dividing $80,000 by 1,800 hours.
That naive division is exactly where most underpricing comes from. It treats every working hour as billable and ignores taxes entirely, when in reality a large share of your time goes to proposals, admin, invoicing, and learning that never gets billed to a client. The calculator above works backward from your actual after-tax target instead, folding in your real tax rate, your benefits costs, and your business expenses before dividing by the number of hours you can genuinely bill, which is usually well under a standard 2,080-hour work year.
Health insurance, retirement contributions, and a market positioning multiplier all shift the final number too. An employee earning the equivalent salary has an employer quietly covering half of the Medicare and Social Security contribution and often subsidizing benefits; a freelancer pays all of it alone, which is exactly why the self-employment tax rate sits well above what a salaried employee sees withheld from a paycheck. Add a market multiplier on top, a modest discount while you are building a portfolio or a premium once you have a track record, and you get a rate grounded in your actual costs rather than a guess at what sounds fair.
Divide your salary by 2,080 and you will underprice yourself
The simplest possible formula takes your target salary and divides it by a standard 2,080-hour work year, which ignores taxes, benefits, and the fact that a meaningful chunk of your time never gets billed to anyone. That formula quietly assumes you are working like a salaried employee with none of the costs a salaried employee’s employer absorbs on their behalf, which is why freelancers who price this way tend to net far less than they expect once tax season arrives.
Taxes take a bigger bite than most freelancers plan for
Between ordinary income tax and the 15.3 percent self-employment tax that covers Social Security and Medicare, combined tax rates commonly land somewhere between a quarter and half of gross income depending on your bracket. On the calculator’s default assumptions, a 25 percent income tax rate plus 15.3 percent self-employment tax adds up to 40.3 percent of gross income going to taxes before anything else is subtracted.
Non-billable hours are a real cost even though nobody invoices for them
A standard work year runs about 2,080 hours, but proposals, admin, marketing, and ongoing learning eat into that total before you ever open a timer for client work. If you can only bill 1,800 of those hours, as in the calculator’s default, your hourly rate has to cover the same annual target across fewer billable hours than a simple salary-divided-by-hours calculation assumes.
Benefits and insurance do not pay for themselves
Health insurance, retirement contributions, and any disability or liability coverage are line items a freelancer funds directly out of billed revenue, unlike a salaried employee whose employer usually covers a meaningful share. On the calculator’s defaults, $5,000 a year in benefits and insurance gets folded directly into the rate calculation, on top of $3,000 in ordinary business expenses like software and equipment.
A market multiplier adjusts for where you actually sit
Once the baseline rate is calculated from your target income, taxes, benefits, and expenses, a market multiplier nudges it up or down depending on your positioning: a discount while you are newer and building a portfolio, the calculated rate itself if you are pricing at standard market level, and a meaningful premium once you have the results and reputation to charge for scarcity rather than just time.
Putting it together with real numbers
Starting from an $80,000 after-tax target, a 40.3 percent combined tax rate, $5,000 in benefits, $3,000 in expenses, and 1,800 billable hours, the calculator lands on a recommended rate of roughly $79 an hour, considerably higher than the $44 an hour a naive salary-divided-by-hours calculation would suggest for the same target income.