Understanding Tax on Your Side Hustle Income
Side gig income is taxed differently from your W-2 paycheck. As a self-employed worker, you owe the full 15.3% self-employment tax (Social Security + Medicare) on your net earnings — your employer normally covers half of this for W-2 income. On top of that, your side income is added to your regular income and taxed at your marginal federal rate.
The good news: you can deduct legitimate business expenses (equipment, software, home office, mileage) before calculating SE tax, and you can deduct half of your SE tax from gross income. These deductions can meaningfully reduce what you owe. For example, $12,000/year in side revenue with 20% business expenses yields about $9,888 in net SE income, generating roughly $1,513 in SE tax plus any marginal income tax.
If you expect to owe $1,000 or more in taxes, pay quarterly estimated taxes to avoid an underpayment penalty. This calculator estimates federal tax only — state income tax (0–13%) will add to the total depending on where you live.
Frequently Asked Questions
SE tax applies to 92.35% of net self-employment income. It phases out for Social Security once combined wages and SE income exceed $168,600 (2024), though Medicare tax has no cap.
Your employer withholds based on your W-2 income alone, so it won't automatically cover side gig taxes. File Form W-4 to increase withholding, or make quarterly estimated payments on Form 1040-ES.