Why 25 to 30 Percent Is the Starting Point
Substack pays you the subscription revenue minus its platform fee and the Stripe processing fee, with zero tax withheld. That money is 100 percent yours to set aside. As a self-employed writer, you owe two separate taxes on your net profit (revenue minus business expenses):
- Self-employment tax: 15.3 percent, covering Social Security and Medicare. This applies to net earnings above $400 for the year and is calculated on Schedule SE.
- Federal income tax: taxed at your regular bracket, which depends on your total income including any day job, spouse's income, or other freelance work. Most part-time writers land between 10 and 22 percent on their Substack profit.
Stack those together and 25 to 30 percent of net income is a safe target for most writers. If Substack is your main income and pushes you into a higher bracket, or if your state has income tax, bump that to 30 to 35 percent.
Save on Net Profit, Not Gross Payouts
Don't apply your savings percentage to the raw payout number. First subtract legitimate business expenses: your writing software, research subscriptions, a portion of your home office, website hosting, a laptop, even a percentage of your phone bill if you use it for the newsletter. Track these on Schedule C. Whatever is left after expenses is your net profit, and that's the number you multiply by 25 to 30 percent.
Example: you collect $2,000 in a month after Substack's cut, and you have $200 in deductible expenses. Your net profit is $1,800. Set aside $450 to $540 for taxes, not $500 to $600.
Quarterly Payments Keep You Out of Penalty Territory
The IRS expects self-employed people to pay taxes as income is earned, not once a year. That means quarterly estimated payments using Form 1040-ES, due in mid-April, June, September, and January. Miss these and you can owe an underpayment penalty even if you pay everything by the April filing deadline.
A simple system: every time a Substack payout lands, immediately transfer your set-aside percentage into a separate savings account. Never touch it. When a quarterly deadline approaches, check whether your running total covers roughly a quarter of your expected annual tax bill, then send the payment.
Don't Forget the 1099-K or 1099-NEC
Depending on payment volume, Substack or its processor may issue a 1099-K reporting your gross payment volume. This form does not subtract Substack's platform fee, so the number on it will be higher than what actually landed in your bank account. Keep your own records of net deposits and expenses so you report accurate net profit on Schedule C, using the 1099-K only as a cross-check, not as your income figure.
Adjust as Your Income Grows
If your newsletter income is small and irregular, err toward the lower end of the range and revisit each quarter. If it becomes a full-time living, get more precise: estimate your effective tax rate using your actual bracket and self-employment tax, then set aside that exact percentage rather than a rough rule of thumb. Reviewing your numbers every quarter, instead of guessing once a year at filing time, is what keeps a big April surprise from happening.