How Side Hustle Income Is Taxed
Side hustle income is taxed differently than your W2 salary. Your employer handles tax withholding for your day job, but nobody withholds taxes on your freelance income. You are responsible for paying both income tax and self-employment tax on your side earnings.
The tricky part: your side hustle income sits on top of your W2 income for tax purposes. This means it is taxed at your marginal rate -- the highest bracket your combined income falls into -- not the average rate you see on your W2. This is why many people are surprised by how much tax their side income generates.
Self-Employment Tax on Side Income
In addition to income tax, side hustle earnings are subject to the 15.3% self-employment tax (Social Security + Medicare). Your W2 employer pays half of FICA taxes on your salary, but there is no employer for your side income -- you pay the full amount. On $15,000 of net side income, that is roughly $2,300 in SE tax alone, before income tax.
Do You Need to Make Quarterly Payments?
If you expect to owe $1,000 or more in taxes from your side hustle, the IRS expects you to make quarterly estimated tax payments. If you skip these, you will owe a penalty when you file your annual return. The quarterly due dates are April 15, June 15, September 15, and January 15.
An alternative is to increase your W2 withholding by filing a new W-4 with your employer. This can cover your side hustle tax through your regular paycheck and avoid quarterly payments entirely.