Side Hustle Taxes: The 15.3% Shock Nobody Warns You About
We calculated what freelancers and gig workers actually owe in taxes. The self-employment tax surprise catches most people off guard.
Made money driving Uber, selling on Etsy, or freelancing? The IRS wants their cut—and it's bigger than you think. We ran the numbers using our US Salary Calculator to show you what you really owe.
The Self-Employment Tax Surprise
When you have a regular job, your employer pays half of your Social Security and Medicare taxes. You never see it.
When you're self-employed? You pay the whole thing.
| Tax | Employee Pays | Self-Employed Pays |
|---|---|---|
| Social Security | 6.2% | 12.4% |
| Medicare | 1.45% | 2.9% |
| Total | 7.65% | 15.3% |
That's right: 15.3% self-employment tax before you even get to income tax.
What You Actually Owe: Real Examples
Using our US Salary Calculator, here's what different side hustle incomes actually cost in taxes:
$5,000 Side Hustle Income
| Tax | Amount |
|---|---|
| Self-Employment Tax (15.3%) | $707 |
| Federal Income Tax (12% bracket) | $600 |
| Total Federal Tax | $1,307 |
| Effective Rate | 26.1% |
You keep: $3,693
$10,000 Side Hustle Income
| Tax | Amount |
|---|---|
| Self-Employment Tax | $1,413 |
| Federal Income Tax (12% bracket) | $1,200 |
| Total Federal Tax | $2,613 |
| Effective Rate | 26.1% |
You keep: $7,387
$25,000 Side Hustle Income
| Tax | Amount |
|---|---|
| Self-Employment Tax | $3,533 |
| Federal Income Tax (22% bracket) | $4,800 |
| Total Federal Tax | $8,333 |
| Effective Rate | 33.3% |
You keep: $16,667
$50,000 Full-Time Freelance Income
| Tax | Amount |
|---|---|
| Self-Employment Tax | $7,065 |
| Federal Income Tax | $6,748 |
| Total Federal Tax | $13,813 |
| Effective Rate | 27.6% |
You keep: $36,187
Calculate your exact freelance taxes →
The Quarterly Payment Trap
If you expect to owe more than $1,000 in taxes, the IRS wants quarterly estimated payments:
| Quarter | Due Date |
|---|---|
| Q1 (Jan-Mar) | April 15 |
| Q2 (Apr-May) | June 15 |
| Q3 (Jun-Aug) | September 15 |
| Q4 (Sep-Dec) | January 15 |
Miss these deadlines? Underpayment penalties of 8%+ on what you owe.
! The biggest mistake new freelancers make: spending all their income and having nothing left for taxes. Set aside 25-30% of every payment immediately.
Side Hustle + Day Job = Complicated
If you have W-2 income AND self-employment income, here's what happens:
Example: $60,000 W-2 + $15,000 Side Hustle
W-2 taxes (already paid):
- Federal income tax: ~$5,968
- FICA (employee portion): $4,590
- Employer paid their half: $4,590
Side hustle additional taxes:
- Self-employment tax: $2,120
- Federal income tax (22% bracket): $3,300
- Additional tax owed: $5,420
Your side hustle is taxed at a higher marginal rate because it stacks on top of your W-2 income.
Calculate combined W-2 + freelance taxes →
Deductions: How to Pay Less (Legally)
Self-employed people can deduct business expenses from their income:
Common Deductions
| Expense | Deductible? |
|---|---|
| Home office (dedicated space) | Yes - $5/sq ft or actual costs |
| Internet (business %) | Yes - proportional |
| Phone (business %) | Yes - proportional |
| Equipment/supplies | Yes |
| Software subscriptions | Yes |
| Mileage (business driving) | Yes - $0.67/mile (2024) |
| Health insurance (self-employed) | Yes - above-the-line |
| SEP-IRA / Solo 401(k) | Yes - up to $66,000 |
Example: $25,000 Income with $5,000 Deductions
| Scenario | Taxable Income | Total Tax | Savings |
|---|---|---|---|
| No deductions | $25,000 | $8,333 | - |
| $5,000 deductions | $20,000 | $6,593 | $1,740 |
Tracking deductions can save you thousands.
The Self-Employment Tax Deduction
Here's a break you might not know about: you can deduct half of your self-employment tax from your income.
Example: $25,000 side hustle income
- Self-employment tax: $3,533
- Deduction: $1,766 off your income
- Tax savings: ~$388 (at 22% bracket)
This is built into our US Salary Calculator automatically.
Retirement Accounts: The Best Tax Shelter
Self-employed people have access to powerful retirement accounts:
SEP-IRA
- Contribute up to 25% of net self-employment income
- Maximum: $66,000 (2024)
- Deadline: Tax filing deadline (with extensions)
Solo 401(k)
- Employee contribution: $23,000 (or $30,500 if 50+)
- Employer contribution: up to 25% of compensation
- Total maximum: $66,000 (or $73,500 if 50+)
Example: $50,000 freelance income, $10,000 Solo 401(k) contribution
| Scenario | Taxable Income | Total Tax |
|---|---|---|
| No retirement contribution | $50,000 | $13,813 |
| $10,000 Solo 401(k) | $40,000 | $10,963 |
Savings: $2,850 plus you have $10,000 invested for retirement.
Platform-Specific Considerations
Uber/Lyft Drivers
- Track ALL mileage (biggest deduction)
- Uber/Lyft fees are deductible
- Car expenses or standard mileage (not both)
- Get a 1099-K if over $600
Etsy/eBay Sellers
- Cost of goods sold (inventory)
- Shipping supplies
- Platform fees
- Home office for storage/shipping
Freelancers (Writers, Designers, Developers)
- Software subscriptions
- Equipment (computers, cameras, etc.)
- Professional development
- Home office
Airbnb Hosts
- Depreciation on property
- Cleaning and maintenance
- Supplies and amenities
- Platform fees
- Different tax treatment (rental income)
The 1099 Threshold
You'll receive tax forms if you earn over:
| Form | Threshold |
|---|---|
| 1099-NEC | $600 |
| 1099-K | $600 (was $20,000 before 2022) |
Important: You owe taxes even if you don't receive a 1099. Report all income.
State Taxes: Don't Forget
Self-employment income is also subject to state income tax. High-tax states take another 5-10%:
| State | Additional Tax on $25K Side Hustle |
|---|---|
| California | ~$1,875 |
| New York | ~$1,500 |
| Illinois | ~$1,238 |
| Texas/Florida | $0 |
Your Side Hustle Tax Checklist
Throughout the Year
- Track all income
- Track all business expenses
- Save 25-30% for taxes
- Pay quarterly estimates
Before Tax Season
- Gather all 1099s
- Calculate total income and expenses
- Consider retirement contributions
- Use our calculator to estimate what you owe
Tax Filing
- File Schedule C (business income)
- File Schedule SE (self-employment tax)
- Claim all legitimate deductions
- Consider hiring a CPA if income is significant
Calculate Your Side Hustle Taxes
Use our US Salary Calculator to:
- Calculate self-employment tax
- See combined W-2 + freelance taxes
- Estimate quarterly payments
- Plan for deductions
Calculate your freelance taxes →
The Bottom Line
Side hustle taxes in a nutshell:
| Income | ~Tax Rate | You Keep |
|---|---|---|
| $5,000 | 26% | $3,693 |
| $10,000 | 26% | $7,387 |
| $25,000 | 33% | $16,667 |
| $50,000 | 28% | $36,187 |
Key takeaways:
- 15.3% self-employment tax is unavoidable
- Save 25-30% of every payment for taxes
- Track deductions to reduce what you owe
- Pay quarterly to avoid penalties
- Retirement accounts are powerful tax shelters
The gig economy is here to stay. Understanding taxes is the difference between a profitable side hustle and working for the IRS.