How we calculate your replacement target.

The Freelance Salary Replacement Calculator answers one question: what freelance revenue, hourly rate, tax reserve, and runway do you need to replace a salaried job without taking an accidental pay cut?

Below is the math, in plain English, with the assumptions we make and the assumptions we deliberately do not.

Current employment value

We start by adding up the baseline your freelance work needs to replace, not just the salary line on your offer letter:

currentEmploymentValue =
  salary
  + annualBonus
  + employerRetirementMatch
  + otherMeaningfulBenefits

We keep this section focused on salary, bonus, retirement support, and any optional cash-value benefits you personally want to replace. Equity is optional - it is real, but it is not cash you can spend on rent.

Pre-tax freelance target

On top of the current employment value, freelancers carry costs an employee does not see directly. We add your direct freelance costs, then layer a risk buffer:

preTaxBeforeBuffer =
  currentEmploymentValue
  + freelanceHealthInsuranceCost
  + otherAnnualBusinessExpenses
  + itemizedDirectCosts
  + desiredRetirementContribution
  + desiredSavingsContribution

desiredRiskBuffer =
  preTaxBeforeBuffer × (bufferPercent / 100)

preTaxFreelanceTarget =
  preTaxBeforeBuffer + desiredRiskBuffer

In the form, "Other annual business expenses" is the catch-all bucket for uncategorized overhead. If you itemize software, accountant, equipment, marketing, insurance, or coworking below it, do not also include those numbers in the catch-all field.

Tax reserve (and why we gross up)

Taxes apply to revenue, not to your post-tax living number. To avoid a circular definition, we gross up the pre-tax target so that after setting aside your chosen tax reserve percentage, the remainder still covers your full pre-tax need:

freelanceRevenueTarget =
  preTaxFreelanceTarget / (1 - taxReservePercent / 100)

estimatedTaxes =
  freelanceRevenueTarget × (taxReservePercent / 100)

The four preset tax reserves (25%, 30%, 35%, 40%) are planning estimates - not tax filings, not advice. Your actual effective rate depends on your deductions, income mix, location, and the specifics of your entity. Talk to a qualified tax professional before you make decisions.

Hourly rate and billable hours

40 working hours per week is not 40 billable hours. Sales, admin, marketing, and unpaid downtime eat into capacity. We ask for your realistic billable hours per week and unpaid weeks per year, and we compute:

workingWeeksPerYear = 52 - unpaidWeeksPerYear
annualBillableHours =
  billableHoursPerWeek × workingWeeksPerYear

minimumHourlyRate =
  freelanceRevenueTarget / annualBillableHours

minimumDayRate = minimumHourlyRate × 8
minimumMonthlyRevenue = freelanceRevenueTarget / 12
monthlyTaxReserve = estimatedTaxes / 12

Runway recommendation

monthlyRunwayTarget =
  essentialMonthlyHousehold × desiredRunwayMonths

recommendedRunway =
  max(monthlyRunwayTarget - existingEmergencyFund, 0)

The runway is separate from business working capital. It is the cushion that lets a slow quarter not end the experiment.

Scenario comparison

We re-run the math at three weekly billable-hour profiles - Lean (28 h/wk), Balanced (22 h/wk), and Conservative (16 h/wk) - so you can see how rate and capacity trade off.

What this calculator includes

• Direct salary, bonus, retirement support, and optional cash-value benefits you choose to replace.
• Business expenses you will pay directly as a freelancer, including health insurance and itemized overhead.
• A user-chosen tax reserve as a planning estimate.
• A user-chosen risk buffer on top of the target.
• Realistic billable capacity, not the 40 h/wk fiction.

What this calculator does not do

• It does not file or compute exact taxes.
• It does not predict client demand, win rates, or close cycles.
• It does not price your work to market - that depends on your skill, segment, and proof.
• It does not replace a conversation with a CPA, lawyer, or financial planner.

Last reviewed

2026-06-20. We review assumptions periodically. See the disclaimer and privacy pages for limits and data handling.