You owe self-employment tax on net side hustle earnings over $400/year. You also owe federal income tax on any side hustle profit added to your regular income. The combined tax rate for most side hustlers is 28–40% on net profit. Good news: legitimate business expenses reduce your taxable profit dollar-for-dollar.
Side hustle income is business income. Whether you drive for rideshare, freelance, sell on Etsy, or tutor online — if you profit more than $400/year, the IRS expects a cut. The rate depends on how much you earn from all sources combined.
The Two Taxes You Pay on Side Hustle Income
- •Self-employment tax: 15.3% of net profit (pays Social Security and Medicare)
- •Federal income tax: added on top of your W-2 income and taxed at your marginal rate
- •State income tax: varies 0–13.3% depending on your state
- •Net: most side hustlers effectively pay 28–40% on every dollar of side hustle profit
Calculate Your Tax on Side Hustle Income
What Counts as a Business Expense?
Any expense that is ordinary and necessary for your side hustle is deductible. This directly reduces your taxable net profit. Common examples:
- •Rideshare: mileage ($0.70/mile in 2026), car washes, phone mount, water for passengers
- •Etsy/e-commerce: materials, shipping, platform fees, photography
- •Freelance work: software, laptop depreciation, home office, professional subscriptions
- •Tutoring/coaching: marketing, platform fees, teaching materials
Do You Need to Pay Quarterly?
If your total side hustle tax liability for the year will exceed $1,000, you are required to make quarterly estimated tax payments. If you have a W-2 job, you can often increase your W-4 withholding instead — simpler than sending quarterly checks.
If your side hustle is small ($5,000–$15,000/year), increasing your W-4 withholding by $100–$300/paycheck is often the easiest way to cover the extra tax without tracking quarterly deadlines.