Side-hustle taxes: how much of each payment to set aside

By Kepler Oates · Updated Oct 22, 2026

When you work a regular job, your employer takes tax out of every paycheck before you see it. Side-hustle money doesn't work that way. A client pays you $800, the full $800 lands in your account, and the tax bill shows up months later.

This guide is for anyone in the US earning money on the side: freelancers, creators, resellers, tutors, drivers, consultants. It explains what you'll owe, shows a full worked example, and gives you a simple system so tax time isn't a shock. If you live outside the US, the general idea (save a share of every payment) still applies, but the rules and rates in your country will be different.

One note before we start: tax figures like brackets, limits and due dates change. Where a current number matters, this guide tells you to check IRS.gov rather than guessing.

The two taxes on side-hustle profit

Self-employed income in the US is usually hit by two separate taxes. Most surprise tax bills come from people only planning for one of them.

1. Self-employment tax

At a job, Social Security and Medicare are split between you and your employer. When you work for yourself, you are both, so you pay both halves. That combined charge is called self-employment tax.

Here is how it's calculated:

• Start with your net earnings from self-employment (your profit: income minus business expenses).
• Multiply by 92.35%. This small reduction mirrors the fact that employers don't pay these taxes on their own share.
• Multiply that by 15.3%. That rate is made of two parts:
• 12.4% for Social Security, which only applies up to a yearly earnings limit called the wage base. Your W-2 wages count toward that limit too. The limit changes every year, so check IRS.gov for the current figure.
• 2.9% for Medicare, which has no cap.

Put together, 15.3% of 92.35% works out to about 14.13% of your profit. (Higher earners can also owe an extra Medicare tax. Check IRS.gov if your income is high.)

You can usually deduct half of your self-employment tax when working out your income tax, which softens the blow a little.

2. Income tax

Your side-hustle profit is also added to your other income and taxed at your regular income tax rates, federal plus state if your state has an income tax. Because it stacks on top of your salary, it's usually taxed at your highest (marginal) rate, not your average rate.

To find your marginal rate, look up this year's federal brackets on IRS.gov and your state's rate on your state tax agency's website.

What counts as a business expense

You pay tax on profit, not on everything a client pays you. Ordinary, necessary costs of running the business usually reduce your profit. Common examples:

• Software, apps and subscriptions you use for the work
• Equipment and supplies
• Platform and payment-processing fees
• Advertising and website costs
• A share of phone or internet costs, if you use them for the business
• Courses directly related to the work you already do

The rules for some categories (home office, vehicles, meals, big equipment purchases) have specific conditions. Keep receipts for everything, and check IRS.gov or a tax professional before claiming the trickier ones.

Quarterly estimated payments

The US tax system expects you to pay as you go, not all at once in April. Since no one is withholding tax from your side income, you're generally expected to send estimated tax payments four times a year if you expect to owe $1,000 or more for the year.

Due dates are set by the IRS and shift when they fall on weekends or holidays. The calculator on this site lists the usual dates, but confirm the current ones on IRS.gov.

The idea of safe harbor

If you underpay during the year, you can owe a penalty on top of the tax. "Safe harbor" rules protect you from that penalty if you paid enough during the year, even if you still owe something when you file. In general, you're covered if your payments (plus any withholding) add up to at least a set share of this year's tax, or at least as much as your total tax for last year. Higher earners need to pay a bit more than last year's amount to qualify.

The practical takeaway: last year's tax return gives you a known target. Check IRS.gov for the exact percentages and income thresholds that apply to you.

A shortcut if you also have a job

If you have a W-2 job, you can ask your employer to withhold extra tax from each paycheck by updating your Form W-4. Withholding generally counts as if it were paid evenly through the year, which can take the place of some or all of your quarterly payments.

A worked example (with the math)

Meet a graphic designer with a full-time job who also takes freelance work. This year she expects:

• Freelance income: $20,000
• Business expenses: $3,000 (15% of income)
• Combined federal and state marginal rate: 20% (an assumption for the example; yours will differ)

We'll keep it simple and assume her salary is well under the Social Security wage base and her job's income already uses up her standard deduction.

Step 1: Profit. $20,000 − $3,000 = $17,000

Step 2: Self-employment tax. - $17,000 × 92.35% = $15,699.50 - $15,699.50 × 15.3% = $2,402.02 - Of that, about $1,947 is Social Security (12.4%) and about $455 is Medicare (2.9%).

Step 3: Income tax. - Half of the self-employment tax is deductible: $2,402.02 ÷ 2 = $1,201.01 - Income taxed: $17,000 − $1,201.01 = $15,798.99 - $15,798.99 × 20% = $3,159.80

Step 4: Total. $2,402.02 + $3,159.80 = $5,561.82

That's about 32.7% of her profit, or about 27.8% of everything clients paid her. If she sets aside a flat 30% of every payment, she'll save $6,000, which covers the estimate with about $438 to spare. A small cushion like that is a good thing.

A simple set-aside system

You don't need to redo that math every time you get paid. You need one percentage and one habit.

1. Open a separate savings account just for taxes. Name it "Taxes" so you're never tempted to treat it as spending money.
2. Pick your set-aside percentage. Use the example above as a pattern, or let the calculator do it. Round up, not down.
3. Move the money the day you get paid. Every payment, every time, before you spend anything.
4. Pay your estimates from that account. When a quarterly due date arrives, the money is already sitting there.
5. Recheck the percentage a few times a year. If your income jumps, your expenses change, or you move states, update it.

Here's how the example's rough rate breaks down for a single $1,000 payment, using the same method the calculator uses (it skips the half-SE-tax deduction, so it errs slightly high):

Part	Math	Amount
Profit share (after 15% expenses)	$1,000 × 85%	$850.00
Self-employment tax	$850 × 14.13%	$120.10
Income tax	$850 × 20%	$170.00
Set aside	$120.10 + $170.00	$290.10 (about 29%)

Common mistakes

• Planning for income tax only. Self-employment tax is often the bigger surprise. Plan for both.
• Using your average tax rate. Side income stacks on top of your salary, so use your marginal rate.
• Setting aside a percentage of profit, then applying it to gross. Be clear which number your percentage is based on. The calculator applies its result to the full payment amount, which is simpler.
• Keeping tax money in your checking account. If it's mixed with spending money, it gets spent.
• Skipping receipts. Expenses you can't document are hard to claim.
• Waiting until April. Missing quarterly payments can mean penalties even if you pay in full when you file.
• Ignoring state tax. Many states tax this income too, and some have their own estimated payment rules.

Do the work this week

1. Find your rate. Open the Side-Hustle Tax Set-Aside Calculator, enter your federal-plus-state rate and your rough business costs as a share of income, and add the payments you've received so far this year. Write down the set-aside percentage it gives you.
2. Open the account. Set up a separate savings account named "Taxes" and move the calculator's "Set aside" total into it now, even if that takes a few transfers.
3. Put the dates in your calendar. Look up this year's estimated tax due dates on IRS.gov and add a reminder a week before each one.

Frequently asked questions

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