How to Transition From Employee to Freelancer: A Practical Plan

Moving from employee to freelancer means taking over jobs your employer did for you: finding the work, setting the price, sending invoices and, in the US, paying your own Social Security, Medicare and income taxes during the year. Plan the move in order. Work out what you need to earn each month, line up your first clients, set up the basics, and talk to an accountant about taxes before your first freelance payment arrives.

1. List what your employer handles now

Before you leave, write down what your job provides that you'll need to replace:

• A regular paycheck, with tax already withheld.
• Benefits, such as health insurance, retirement contributions and paid time off.
• Equipment and software.
• Work that comes to you, without you having to sell it.

Each item becomes a cost or a task in your freelance business.

2. Taxes when you work for yourself (US)

This section quotes US federal rules from IRS pages opened on October 29, 2026. State and local rules differ, and so do the rules in other countries. It isn't tax advice: ask your accountant how these rules apply to you.

Self-employment tax. The IRS self-employment tax page says: "Self-employment tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners." It gives the rate: "The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance)."

The same page says self-employment tax is due, and Schedule SE must be filed, if either of two conditions applies. The first is: "Your net earnings from self-employment (excluding church employee income) were $400 or more." It also says: "You can deduct the employer-equivalent portion of your self-employment tax in figuring your adjusted gross income."

Estimated tax payments. The IRS estimated taxes page says: "Taxes must be paid as you earn or receive income during the year, either through withholding or estimated tax payments." It adds: "If you are in business for yourself, you generally need to make estimated tax payments." and "For estimated tax purposes, the year is divided into four payment periods." If you don't pay enough during the year, the page says "you may have to pay a penalty."

The IRS page About Form 1040-ES says: "Use Form 1040-ES to figure and pay your estimated tax." The IRS self-employed individuals tax center adds: "If this is your first year being self-employed, you will need to estimate the amount of income you expect to earn for the year."

If you still have a job. The estimated taxes page says: "If you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to withhold more tax from your earnings. To do this, file a new Form W-4 with your employer."

Ask your accountant how much to set aside, whether you need to make estimated payments, and when.

3. Choose how to make the move

There are two routes:

• Start with side work. Keep your job and take on a few freelance projects. Check your employment contract first for any rules on outside work. The IRS self-employed tax center counts people who are "in business for yourself (including in a part-time business or as a gig worker)" as self-employed, so the tax points above can apply from your first side project.
• Leave and start full time. You have more hours for freelance work sooner, but you rely on savings until clients pay you.

The sample below shows one way to compare your savings with your monthly costs.

4. Work out what you need to earn

Sample (invented figures). A designer plans to leave a salaried job.

• Personal expenses a month: $4,000.00
• Business costs a month (software, insurance, equipment): $500.00
• Amount set aside for taxes each month: $1,500.00. This figure is invented for the sample; ask your accountant for your own.
• Total needed a month: $4,000.00 + $500.00 + $1,500.00 = $6,000.00
• Billable hours a month: 20 hours a week × 4 weeks = 80
• Minimum hourly rate: $6,000.00 ÷ 80 = $75.00 an hour
• Savings of $18,000.00 cover $18,000.00 ÷ ($4,000.00 + $500.00) = 4 months of personal and business costs with no freelance income.

Billable hours are the hours you can invoice a client for. Time spent on sales, admin and invoicing isn't billable, so the designer plans for 20 billable hours a week, not 40. Time tracking shows how your hours split, and the hourly rate calculator runs the same sum with your own figures.

5. Line up your first clients

Start with people who already know your work:

• Former colleagues and managers, including those who've moved to other companies.
• Agencies that need extra help on projects.
• Specific asks. Say what you offer and who it's for, such as two website audits a month for software companies, and ask who you should talk to.

Check your employment contract for terms about approaching your employer's clients or competing with your employer, and ask a lawyer if you're unsure.

6. Set up the basics

• Business structure. The IRS self-employed tax center says: "When beginning a business, you must decide what form of business entity to establish. Your form of business determines which income tax return form you have to file." Ask your accountant, and a lawyer where needed.
• A written agreement for each client, covering scope, price, payment terms, who owns the work and how either side can end it.
• A separate bank account for business money.
• A way to invoice clients and record expenses from your first project.
• Health insurance and other cover to replace what your employer provided.

Where Billed fits

Billed's invoice software page says: "Connect your Stripe account and every invoice you send gets a pay button, so clients can pay by card." It also says: "Invoice reports show which invoices are paid, partially paid or past due, and you can see who owes you money and send them a payment reminder." Its expense tracking page says: "Give every expense a category so your spending is already sorted when you file taxes or hand the year to your accountant." Its time tracking page says: "Billed's reports include a time tracking report."

Related Articles

• What Is Self-Employment Tax?
• What Is Quarterly Estimated Tax?
• Freelance Taxes: U.S. Essentials for Self-Employed Workers
• How to Set Freelance Rates
• How to Find Freelance Clients
• Freelance Contract Essentials
• How to Open a Business Bank Account

Frequently Asked Questions

Do freelancers pay self-employment tax in the US?

The IRS says self-employment tax is due, and Schedule SE must be filed, if "Your net earnings from self-employment (excluding church employee income) were $400 or more." It gives the rate as 15.3%: 12.4% for Social Security and 2.9% for Medicare. Ask your accountant how this applies to you.

Do freelancers make quarterly tax payments?

In the US, the IRS says: "If you are in business for yourself, you generally need to make estimated tax payments." It divides the year into four payment periods, and Form 1040-ES is used to figure and pay estimated tax. Ask your accountant whether you need to pay, how much and when.

How do I work out what to charge after leaving a job?

Add your monthly personal expenses, business costs and the amount you set aside for taxes, then divide by the hours you expect to bill each month. In the sample on this page, $6,000.00 a month over 80 billable hours gives a minimum of $75.00 an hour.

Can I start freelancing while I still have a job?

Check your employment contract for rules on outside work first. In the US, the IRS counts people in a part-time business as self-employed, so the self-employment tax and estimated tax points can apply to side work. The IRS also says employees can ask their employer to withhold more tax, by filing a new Form W-4, instead of paying estimated tax. Ask your accountant.