Your first contract pays €3,000 a month, the whole amount, straight into your account. It feels like a raise, until the first tax bill shows how much of it was only passing through.
In short: for an employee, the employer takes tax and contributions out before pay arrives and sends them on. For a contractor or freelancer, nothing is taken out: you get the full amount, and you calculate and pay the tax yourself, later. So treat a share of every payment as already spent: move it to a separate tax account the day it arrives, and keep records of your business costs.
- Full payment arrives
- Tax share to a tax account
- Costs recorded as you go
- Bill paid from the tax account
This is a general, country-neutral explanation, not tax or legal advice. Rates, contributions, deadlines and what counts as a business cost differ by country and change over time. Ask an accountant or your tax authority.
A worked example
Made-up but realistic: €3,000 a month, and a made-up 30% for tax and contributions together. Your real share could be higher or lower.
| Employee | Contractor | |
|---|---|---|
| Who calculates the tax | the employer | you |
| When it's paid | every month, before pay | on the tax deadlines |
| What lands in your account | pay after tax | the full €3,000 |
| What you need to do | mostly nothing | set aside €900 a month |
€10,800
The money is the same either way. The difference is who holds the tax in the meantime. As a contractor, it sits in your account for months, looking like yours. Set aside €900 every month and the bill is a transfer. Set aside nothing and it's €10,800 to find at once.
The steps
1. Find out which you are
Employee, contractor, or both (a job plus a side contract). It's the income arrangement that matters, not the job title; your contract and your tax authority's guidance decide it.
2. Get your share from an accountant
Ask what share of income to set aside, including social and health contributions where they apply. Until you know, set aside a cautious, round share; lowering it later is easy.
3. Move the share the day each payment arrives
To a separate tax account, not the everyday one (split every payment).
4. Keep records of business costs
Business costs can lower your tax, but only the ones you can prove. Keep the receipt with the transaction (recordkeeping).
5. Check the tax account every quarter
Compare it with what you'll owe. If it's short, raise the share now, not in the month the bill arrives.
The traps
- Spending the gross amount. Part of every payment is tax you're holding for later.
- Forgetting the side income. If you're employed and also take side contracts, the side income usually isn't taxed for you.
- Counting only income tax. In many countries contractors also pay social or health contributions.
- The first year. In some countries, a first-year bill and the first advance payments for the next year can fall close together. Ask your accountant what to expect.
Check your safety net
Contractor income comes unevenly, so a buffer matters more. The free emergency fund calculator shows how long yours takes to build.
One thing to do today
Add up what you've been paid as a contractor this year and set aside your share of it. If the money isn't there, you know the gap, and you have time to close it.
Where Volora fits
In Volora, a Tax reserve wallet holds the share you set aside, with a goal linked to it for your next payment. Income lands in your everyday wallet and the tax share is a transfer, so the reserve shows exactly what's been put aside. Expenses can be marked as tax-deductible as you record them. Volora keeps records organized; it doesn't file taxes or calculate what you owe.