What does a $100/hour freelance rate actually pay you?

A client offers $100 an hour. Whether that is good depends entirely on what survives the journey to your account, and three things happen on the way: business expenses, tax, and the hours you work without billing.

This guide runs the arithmetic forwards. The rate calculator runs it backwards — you say what you want to keep, it says what to charge. Both are useful; this is the one for judging an offer that is already on the table.

Step one: expenses come off first

You are taxed on profit, not on what you invoice. Software, insurance, hardware, an accountant, a coworking desk — subtract them before anything else.

Ten per cent is a reasonable planning figure for a service freelancer with no inventory. Some run at 5%, some at 25%. Use your own if you know it.

Step two: federal tax

On the profit that remains you owe income tax and self-employment tax, and the second one is the surprise: 15.3% covering both halves of Social Security and Medicare, because there is no employer to pay the other half.

Running $100/hour at three realistic volumes, with 10% expenses, filing single, federal only:

Billable hours	Invoiced	Profit	Federal tax	Kept	Per billable hour
1,000	$100,000	$90,000	$19,316	$70,684	$70.68
1,300	$130,000	$117,000	$27,547	$89,453	$68.81
1,600	$160,000	$144,000	$35,778	$108,222	$67.64

So a $100 rate is worth roughly $68–71 per billable hour. The number falls as you earn more, because higher income crosses into higher brackets — which is also why the proportion you should set aside rises from about 21% to 25% across that range.

Step three: the hours you do not bill

This is the one that changes how the number feels.

Nobody bills every working hour. Proposals, invoicing, chasing payment, email, admin, bookkeeping, marketing, the call that did not become a project — none of it is billable and all of it is work. A sustainable freelancer bills somewhere around 60–70% of the hours they work.

Take the middle row. Billing 1,300 hours at 65% utilisation means working about 2,000 hours — a normal full-time year:

$89,453 kept ÷ 2,000 hours worked = $44.73 per hour of your actual life

A $100 rate is a $45 rate. That ratio holds across the table: roughly $44–46 an hour worked at every volume, because the two effects move together.

And it is still not the whole cost

Everything above is federal tax only. Three more things come off before this is comparable to a salary:

• State income tax, unless you are in one of the states without it. See the take-home pay calculator for yours.
• Health insurance, which an employer would largely have paid. This is often the single largest item and it is easy to leave out of the comparison.
• Retirement saving. A salary with a 5% match was quietly adding money you now have to add yourself.

Which is why the honest salary equivalent of a $100 freelance rate is not “$100 × 2,080 = $208,000”. It is far nearer the mid-$90,000s of kept income, against which you must set a salaried job’s benefits, paid leave and employer-funded payroll tax.

What to do with this

Judging an offer: halve the rate. It is crude and it is close. $100/hour is about $45 an hour of your life before state tax and insurance — compare that against what you would otherwise be doing with the time.

Setting a floor: work backwards from what you need to keep rather than forwards from a rate that sounds respectable. That is what the rate calculator does.

Improving the number: there are only three levers, and they are not equally good.

1. Raise the rate. Every dollar lands on profit. By far the strongest lever.
2. Raise utilisation — bill 70% instead of 60% of your hours. Real, but there is a ceiling, and pushing it usually means working more rather than billing more.
3. Reduce expenses. Weakest, and often counterproductive: the tool that saves you four hours a month is worth more than its cost.

The instinct is usually to work more hours. The arithmetic says the rate is where the money is — a 10% rate rise beats a 10% hours rise, because the hours cost you a life and the rate does not.

The set-aside

Whatever you charge, the practical habit that makes it work is moving the tax money the day a client pays, not in April. The percentages from the table above — 21% to 25% of profit at these income levels, federal only — are a starting point; add your state on top.

How much to set aside goes through that properly, and the calculator below gives you the figure for your own numbers.