Side hustle taxes come in two parts: self-employment tax of 15.3% on 92.35% of your net side earnings, plus regular federal and state income tax at your top rates. For a worker earning $55,000 in wages, $10,000 of side profit can add roughly $3,000 in total tax, so setting aside about 30% of side profit would cover it in that case.
The catch is that nobody withholds tax from freelance or gig income the way an employer does from your paycheck. You have to set money aside yourself and pay it through estimated payments or extra withholding at your main job. This guide shows how to estimate the amount and how to pay it.
Why side income is taxed differently
When you work as an employee, your employer withholds federal income tax, state income tax, and your half of Social Security and Medicare from every paycheck. Your employer also pays a matching share of Social Security and Medicare.
When you earn side income as an independent contractor or small business owner, you are both the worker and the employer. That means two things:
- You pay both halves of Social Security and Medicare through self-employment tax.
- No tax is withheld, so you are responsible for paying during the year.
Our guide to 1099 vs. W-2 income compares the two setups in more detail. Your side income is taxable whether or not you receive a tax form for it.
Part 1: Self-employment tax
Self-employment tax is 15.3%: 12.4% for Social Security and 2.9% for Medicare. It applies to 92.35% of your net self-employment earnings, which is your side income minus allowable business expenses. Generally, you owe it once net earnings from self-employment reach $400 for the year.
The Social Security part stops at the 2026 wage base of $184,500, and your W-2 wages count toward that cap first. Most people with a regular job and a side hustle are below the cap, so the full 15.3% applies. See our full guide to self-employment tax.
Part 2: Income tax on top of your wages
Side profit is added to your other income, so it is taxed at your highest federal bracket and, in most states, your state rate too. If your wages already put you in the 22% federal bracket, your side profit is generally taxed at 22% or higher for federal income tax.
You can deduct half of your self-employment tax when figuring income tax, which lowers the income tax bill slightly. Business expenses also lower both income tax and self-employment tax, so keep receipts and records.
Worked example: what to set aside for side hustle taxes
Say you are single and earn a $55,000 salary in Wisconsin, paid biweekly. You also earn $10,000 in net profit from freelance design work. Here is a rough estimate of the extra tax.
Self-employment tax
- $10,000 x 92.35% = $9,235 subject to self-employment tax
- Social Security: $9,235 x 12.4% = $1,145.14
- Medicare: $9,235 x 2.9% = $267.82
- Total self-employment tax: $1,412.96
Income tax
To estimate the added income tax, compare the calculator's federal and state income tax at $55,000 and at $65,000:
| Income | Federal income tax (annual) | Wisconsin income tax (annual, estimate) |
|---|---|---|
| $55,000 (wages only) | $4,420.00 | $1,639.04 |
| $65,000 (wages + side profit) | $5,619.90 | $2,078.96 |
| Added by side income | $1,199.90 | $439.92 |
Total
| Tax | Estimated amount |
|---|---|
| Self-employment tax | $1,412.96 |
| Federal income tax | $1,199.90 |
| Wisconsin income tax | $439.92 |
| Total on $10,000 of side profit | $3,052.78 |
That is about 30.5% of the side profit. This is a rough estimate: it ignores the deduction for half of self-employment tax and any other deductions or credits, which could lower the income tax part. Wisconsin figures are also estimates because the calculator uses the maximum standard deduction. Try your own state on the Wisconsin paycheck calculator or another state in the state directory.
Your percentage will differ. In a state with no wage tax, such as Texas, the state part drops out. At a higher income, your federal bracket may be 24% or more.
How to estimate your own set-aside rate
- Start with 15.3% x 92.35%, which is about 14.1% of net side profit, for self-employment tax.
- Add your top federal bracket from your wages. Use the paycheck calculator at your salary and at your salary plus side profit, and compare the federal tax.
- Add your state income tax the same way.
- Move that percentage of every side payment into a separate savings account as soon as it arrives.
Rounding up gives you a margin. Any extra left after you file is simply savings.
How to pay: estimated taxes or extra withholding
You have two main ways to pay tax on side income during the year.
Quarterly estimated tax payments
You can send estimated payments to the IRS four times a year, and to your state if it has an income tax. The IRS explains due dates and how to pay on its estimated taxes page. Our guide to estimated tax payments covers the basics.
Extra withholding from your main job
If you also have a W-2 job, you can enter an extra amount on line 4(c) of your Form W-4 so your employer withholds more from each paycheck. Withholding can cover both income tax and self-employment tax owed on your return. In the example, spreading $3,053 across 26 paychecks would mean about $117 extra per paycheck.
Either way, paying too little during the year can lead to an underpayment penalty. The rules have exceptions, so check the IRS page or a tax professional for your situation.
Frequently Asked Questions
How much should I set aside for side hustle taxes?
Add about 14.1% for self-employment tax to your top federal bracket and your state rate. In the Wisconsin example, that came to roughly 30% of net side profit, but your rate depends on your income and state.
Do I pay self-employment tax if I also have a W-2 job?
Yes. Self-employment tax applies to your net side earnings regardless of your job, though the Social Security part stops once wages and self-employment earnings together reach $184,500.
Do I have to report side income if I don't get a 1099?
Yes. Side income is taxable whether or not you receive a form.
Can business expenses reduce my side hustle taxes?
Yes. Allowable business expenses lower your net profit, which reduces both self-employment tax and income tax. Keep good records.
Sources
- IRS: Self-Employment Tax (Social Security and Medicare Taxes)
- IRS: Estimated Taxes
- IRS: About Form W-4
- SSA: Contribution and Benefit Base
Run the numbers for your state
Written and checked against IRS, Social Security Administration and state tax agency publications for the 2026 tax year. General information, not tax, legal or financial advice. Read our editorial policy, calculation methodology and sources.