"What should I charge to match my old salary?" is the wrong question, because a salary and a freelance rate are not the same kind of number — one is take-home pay after your employer covers a stack of costs you never see, the other is gross revenue you have to generate yourself. This calculator converts one into the other honestly, by adding back what your employer was quietly paying for and dividing by the hours you can actually bill, not the hours on a calendar.
How it works
Start with your salary, then add two things your paycheck was never the whole story on. First, the value of your benefits — health insurance, any retirement match, paid time off — which your employer paid for and you now have to buy yourself or go without. Second, your business expenses: software, insurance, equipment, anything it costs to run a one-person operation. Add those three together and you get your "needed gross" — the total revenue that has to land in the business before anything else happens to it.
Then comes the part salary never had to deal with: self-employment tax. As a freelancer, the full needed-gross amount is subject to Social Security and Medicare tax if it flows through as net profit, calculated on 92.35% of that figure — 12.4% for Social Security up to the annual wage base, plus 2.9% for Medicare with no cap. That tax gets added on top, and the total is your required annual revenue. Divide that by your annual billable hours — the hours you expect to actually invoice a client, not your total working hours — and you get your required hourly rate. Multiply by eight for a day rate.
Worked example
Say your current salary is $70,000, your benefits are worth $12,000 a year, your business expenses run $5,000, and you plan to bill 1,200 hours this year.
- Needed gross: $70,000 + $12,000 + $5,000 = $87,000
- Self-employment tax: 92.35% of $87,000 = $80,344.50 taxable base; 12.4% Social Security = $9,962.72, plus 2.9% Medicare = $2,329.99, for $12,292.71 total
- Required annual revenue: $87,000 + $12,292.71 = $99,292.71
- Required hourly rate: $99,292.71 ÷ 1,200 = $82.74
- Required day rate: $82.7439… × 8 = $661.95
Compare that to the naive shortcut of $70,000 ÷ 2,080 hours, which gives $33.65 an hour — less than half the honest number. The gap is entirely explained by three things the naive math skips: $17,000 in benefits and expenses that now come out of revenue instead of a corporate budget, over $12,000 in self-employment tax that a W-2 paycheck never touched directly, and the fact that only 1,200 of a freelancer's roughly 2,000 working hours actually get billed.
How to interpret your result
This is the rate that makes you exactly as well off as your old salary, once benefits, business costs, and self-employment tax are accounted for — not a penny more. It says nothing about market rates in your field, so if it lands well above what comparable freelancers charge, that's useful information: either your billable-hours estimate is too conservative, your benefits figure is inflated, or the market genuinely won't sustain a full salary-equivalent yet and you need a transition plan.
It also doesn't include ordinary income tax, which applies to both employees and freelancers alike and isn't part of this comparison. And it treats "needed gross" as if every dollar of it were taxable self-employment profit, which is a deliberately conservative simplification — in practice you'd deduct further business costs before net profit is calculated, which would lower the real tax bill slightly below what this tool estimates. Treat the output as a firm floor to negotiate from, not a rate ceiling.
Methodology & sources
The formula is neededGross = currentSalary + benefitsValue + businessExpenses; self-employment tax is computed on neededGross as (neededGross × 92.35%) capped-at-wage-base × 12.4% + (neededGross × 92.35%) × 2.9%; requiredAnnualRevenue = neededGross + seTax; and requiredHourlyRate = requiredAnnualRevenue / annualBillableHours, with the day rate at eight times that hourly figure.
The self-employment tax mechanics — 92.35% taxable base, 12.4% Social Security up to the annual wage base, and uncapped 2.9% Medicare — follow the IRS's own description of Self-Employment Tax (Social Security and Medicare Taxes). The idea of pricing in the value of lost employer benefits when moving from salary to self-employment is standard career-transition advice; the U.S. Small Business Administration's guide to calculating startup and running costs is a reasonable starting checklist for the business-expenses side of the equation.