Taxes

Income tax for freelancers: how your profit is taxed in box 1

Written by Ilias7 min read

Income tax for freelancers: how your profit is taxed in box 1

We write a lot about VAT, but the tax that weighs heaviest for most freelancers is income tax. Your profit is taxed in box 1, after a series of deductions and exemptions that can substantially reduce the amount. If you understand the calculation, you can plan, reserve and decide better. This article walks step by step from your profit to the amount you ultimately pay, using the 2026 figures.

Step 1: from turnover to profit

It starts with your business profit: your turnover minus all business costs. So after deducting your materials, software, travel costs, depreciation, insurance and all other costs you incur for your business. VAT stays entirely out of the picture here: it runs through your VAT return and is neither revenue nor cost.

Step 2: the entrepreneur deductions

If you meet the 1,225-hour criterion per year, you first deduct the self-employed deduction from your profit: 1,200 euros in 2026. If you are a starter, the starter's deduction of 2,123 euros may come on top, which you may use at most three times in your first five years. Other entrepreneur deductions, such as the R&D deduction, also land in this step. What remains is called the profit after entrepreneur deductions.

Step 3: the SME profit exemption

Then 12.70% comes off automatically: the SME profit exemption. No hours criterion applies to it; every income tax entrepreneur receives it. With a profit after entrepreneur deductions of 50,000 euros, that saves 6,350 euros of taxable income. The exemption works both ways, by the way: in a loss year it also reduces your deductible loss.

Step 4: the box 1 brackets in 2026

On your taxable income from work and home you pay tax in three brackets in 2026: 35.75% on the first 38,883 euros, 37.56% on the portion up to 79,137 euros and 49.50% on everything above that. If you also have salary from employment or other box 1 income besides your business, everything is added together before the brackets are applied. Deductions such as mortgage interest relief lower the taxable amount.

Step 5: the tax credits

Finally, the tax credits come off the calculated tax. The general tax credit applies to everyone and decreases as your income rises. The labour tax credit applies to your earned income, including your profit, and first increases and then phases out. It is precisely these credits that make your effective tax burden at a modest profit much lower than the bracket percentages suggest: a starting freelancer with a small profit often pays little to no income tax after deductions, exemption and credits.

A worked example

Suppose your profit is 60,000 euros and you meet the hours criterion, without the starter's deduction. After the self-employed deduction of 1,200 euros, 58,800 euros remains. The 12.70% SME profit exemption takes off over 7,400 euros, leaving about 51,330 euros taxable. On the first 38,883 euros you pay 35.75%, on the rest 37.56%. That brings you to roughly 18,500 euros gross, after which the tax credits take off several thousand euros more. On balance you pay around a quarter to thirty percent of your profit; the exact amount depends on your personal situation.

What to do with this

Two practical lessons. One: continuously reserve for income tax, as a rule of thumb 30 to 40% of your profit, depending on your level. Two: consider a provisional assessment if your profit is predictable, so you pay in instalments and avoid tax interest. And guard your time records: for starters, the difference between having and not having the self-employed plus starter's deduction easily exceeds a thousand euros in tax.

This article provides general information based on the rules known for 2026 and does not replace personal tax advice. For your specific situation, we're happy to take a look with you.