How to Calculate Your Freelance Hourly Rate (So You Stop Undercharging)

Quoting your old salary divided by 2,080 hours is the fastest way to undercharge as a freelancer. That number — a $80,000 salary becomes $38.46 an hour — ignores self-employment tax, business expenses, and all the hours you work but never bill. A freelancer has no employer paying half the payroll tax, no paid vacation, no office supplied for free, and no benefits package quietly funded behind the paycheck. Our free freelance hourly rate calculator works backwards from the life you actually want: your target salary, your real billable hours, your costs, and your tax rate, and it tells you the hourly rate that genuinely pays for all of it. This guide explains the formula, works the example the calculator itself uses, and names the five mistakes that leave freelancers busy yet broke.

How to Use the Calculator

1. Enter your target annual salary. This is the pay you want freelancing to replace — the number you would accept as an employee salary, before business costs. Be honest here, not modest; this is the foundation everything else builds on, and a modest foundation produces a rate that cannot sustain the life it is supposed to fund. 2. Enter your billable hours per week. Not the hours you work — the hours clients pay for. A 40-hour week usually contains 25 to 35 billable hours once you subtract proposals, invoicing, emails, marketing, and learning. New freelancers often overestimate this; 30 is a realistic starting point. 3. Enter weeks off per year. Freelancers have no paid vacation, holidays, or sick days. Four weeks covers two weeks of vacation plus holidays and the odd sick day, and every week off shrinks your billable year — which is exactly why it belongs in the math. 4. Enter annual business expenses. Add up software subscriptions, hardware, website hosting, professional insurance, coworking or home-office costs, accounting, and retirement contributions. Most solo freelancers land between $5,000 and $15,000 a year. 5. Enter your effective tax rate. This is the one people guess worst. It is not your top marginal bracket — it is total tax divided by total income, including the 15.3% self-employment tax on net earnings. For many US freelancers the combined effective rate lands around 22 to 30%. Check last year's return if you have one, or start with 25%. Press Calculate My Rate for your hourly rate plus a breakdown showing how much of it is salary, how much is expenses, and how much the taxman takes. Once you have the rate, the next step is putting it on paper properly — our invoice guide covers what a professional invoice must contain — and if you want to sanity-check what the rate means as take-home pay, our take-home pay guide walks through the employee side of the same math.

The Formula: Why Your Rate Is Higher Than You Think

The calculator runs on one formula: hourly rate equals (target salary plus business expenses) divided by (1 minus effective tax rate), divided by billable hours per year. Every part exists for a reason. Salary plus expenses is your true revenue target: clients must fund both your paycheck and the cost of running the business. An employee's employer covers the office, software, and equipment; a freelancer's clients have to cover it through the rate. Dividing by (1 minus tax rate) "grosses up" that target. If you need $88,000 after tax and you pay 25% in tax, you cannot bill $88,000 — a quarter of it disappears. You need $88,000 divided by 0.75, which is $117,333, in revenue to keep $88,000. This is the step most freelancers skip, and it is why so many feel busy yet broke. Dividing by billable hours per year — weekly billable hours times working weeks — spreads that revenue across the only hours that earn. A 40-hour workweek with 30 billable hours and 4 weeks off means 1,440 paying hours, not 2,080. The fewer hours you bill, the more each one must earn. And here is the part employees never see: you pay both halves of payroll tax. An employee pays 7.65% toward Social Security and Medicare while the employer matches it. A freelancer pays the full 15.3% self-employment tax on net earnings. That extra 7.65% alone is thousands of dollars a year, and it is baked into your tax rate here.

Worked Example: The Designer Who Thought $50 Was Fair

Meet a freelance designer targeting an $80,000 salary. She bills 30 hours a week, takes 4 weeks off, spends $8,000 a year on her business, and faces a 25% effective tax rate. Billable hours per year are 30 times (52 minus 4) weeks, which is 1,440 hours. Revenue needed is $80,000 plus $8,000, which is $88,000. Grossed up for taxes, $88,000 divided by (1 minus 0.25) is $117,333.33. The hourly rate is $117,333.33 divided by 1,440, which is $81.48 an hour. The breakdown is instructive: the base rate, salary only, is $80,000 divided by 1,440, or $55.56; the expenses adder is $8,000 divided by 1,440, or $5.56; and the tax adder is the remainder, $81.48 minus $55.56 minus $5.56, or $20.37. Her old employee wage was $80,000 divided by 2,080, or $38.46 an hour. Her real freelance rate is $81.48 — more than double. That is not greed; it is the honest cost of replacing a salary with no benefits, no paid time off, business overhead, and the full 15.3% self-employment tax. If she quoted $50 an hour because it "felt fair," she would keep roughly $49,000 after expenses and taxes — a $31,000 pay cut she would never notice until tax day. That gap, discovered at tax time instead of at quoting time, is the single most common freelance money story there is.

Common Mistakes

Dividing by 2,080. A salaried year has 2,080 working hours, but a freelance year does not have 2,080 billable hours. Weeks off and unbilled admin time cut it to roughly 1,400 to 1,600 for most solo freelancers, and every hour removed raises the rate each remaining hour must carry. Counting worked hours as billable hours. Proposals, revisions that were not scoped, invoicing, emails, marketing, and learning are real work and unpaid work at the same time. If your rate assumes 40 billable hours, it assumes you never do any of it. Using your top tax bracket instead of your effective rate. Your marginal bracket is the rate on your last dollar, not your average dollar. The calculator needs total tax divided by total income, including self-employment tax — for many US freelancers, 22 to 30% combined. Forgetting expenses entirely. Software, hardware, insurance, hosting, and accounting are not luxuries; they are the office your former employer used to provide. Leaving them out means paying for them out of your salary. Setting the rate once and never revisiting it. Expenses rise, tax situations change, and billable hours shrink as admin grows. Re-run the calculation at least once a year, and every time your costs or your target salary change materially.

Limits Worth Knowing

This calculator uses one effective tax rate, which blends federal income tax, state tax, and self-employment tax into a single number. In reality, income tax is progressive, self-employment tax has its own thresholds, and quarterly estimated payments have their own timing — so treat the result as a quoting floor, not a tax return, and confirm the final figure with your own return or an accountant. It also assumes your income is roughly steady across the year; a freelancer with feast-and-famine months may need a buffer on top of the rate, not instead of it. And an hourly rate is not always the right price: for well-scoped work with a clear outcome, a project price built from the same hourly floor often earns more and sells better, because the client buys the result, not your time. What the calculator gives you, either way, is the floor below which you are subsidising the client out of your own pocket — and knowing that floor changes every negotiation that follows.

Frequently Asked Questions

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