Side Hustle Income: The Self-Employment Tax Rules You Need to Know

Side hustle income is subject to both income tax and self-employment tax (Social Security + Medicare). For most freelancers, that adds about 15.3% on top of their regular income tax rate. The good news: deductions can reduce both.

Self-Employment Tax Calculation

Net earnings from self-employment (income minus business expenses) × 92.35% × 15.3%. If you made $10,000 net on a freelance gig, SE tax = $10,000 × 0.9235 × 0.153 = $1,413. That's on top of your regular income tax on that $10,000.

Quarterly Estimated Taxes

If you expect to owe $1,000+ in taxes from self-employment income, the IRS requires quarterly estimated tax payments (Form 1040-ES). Deadlines: April 15, June 15, September 15, January 15 of the following year. Underpayment penalties apply if you miss them, so calculate carefully when starting a new side hustle.

Common Deductions

Any expense that is ordinary and necessary for your business is deductible: home office expenses (use the simplified method: $5/sq ft up to 300 sq ft = $1,500 max), equipment, software subscriptions, professional development, marketing, mileage (67 cents/mile in 2026), and health insurance premiums (for self-employed). For building a sustainable side income, a side income guide covering freelancing, pricing, and tax strategy helps you structure the business side correctly from the start.

1099 Reporting

Clients who pay you $600+ must send you a Form 1099-NEC. Income is taxable regardless of whether you receive a 1099 — if you made $400+ in self-employment income, you report it on your Schedule C regardless of 1099 receipt.