How side hustles affect your taxes

Side hustles can be a great way to bring in extra income and reach your financial goals faster. But before you celebrate the extra deposit, there’s something important to keep in mind: Your side hustle can change your taxes.

If you’re earning money outside of a traditional W-2 job, you might owe more than you expect — and you might even need to pay taxes throughout the year instead of just in April.

Here’s what you need to know about how side hustles affect your taxes so there are no surprises.

Your side hustle is a business — treat it like one

If you earn money from a side gig, the IRS considers you self-employed. That means you’re running a business, even if it’s part time or just a few hours a week.

As a business owner, you’re responsible for:

• Tracking your income
• Keeping receipts for expenses
• Reporting profits on your tax return

What tax forms do side hustlers file?

When you earn money from a side hustle, you’ll report that income on your regular federal tax return using a few additional forms. Here are some of the forms you might use:

• Schedule C: Most side hustlers report their business income and expenses on Schedule C. This is included with Form 1040, the standard federal income tax return that most individuals file each year. Your net profit from Schedule C ultimately becomes part of your total income on Form 1040.
• Form 1099: Some companies will send you a Form 1099 once your payments exceed certain thresholds. This reports how much the company paid you during the year. You’ll use this information when completing Schedule C. Note that even if you don’t receive a Form 1099, you’re still required to report all income you earn. Not receiving one doesn’t mean the income isn’t taxable. You’re responsible for reporting it either way.
• Schedule SE: Most self-employed workers also file Schedule SE (Form 1040) to calculate their self-employment tax, which includes both Social Security and Medicare taxes.

Don’t forget the self-employment tax

One of the biggest surprises for new side hustlers is the self-employment tax. If you work a traditional job, you and your employer split Social Security and Medicare taxes. Self-employed workers, on the other hand, are responsible for both portions.

As of 2026, the self-employment tax rate is 15.3%, and it includes:

• 12.4% for Social Security
• 2.9% for Medicare

This tax applies to your net earnings, which is your profit after expenses. The good news? You can deduct the employer-equivalent portion of your self-employment tax when calculating your adjusted gross income. This helps reduce your overall taxable income.

You might need to pay quarterly taxes

If taxes aren’t being withheld from your side hustle income, the IRS expects you to make estimated tax payments throughout the year. Because gig workers don’t have a traditional employer automatically sending tax payments to the IRS, they’re typically required to pay taxes quarterly.

In general, you’ll need to make estimated payments if you expect to owe at least $1,000 in tax for the year after subtracting withholding and credits. Most side hustlers operate as sole proprietors by default, so estimated tax rules generally apply to them.

These quarterly deadlines are:

• April 15 (for income earned January 1 through March 31)
• June 15 (for income earned April 1 through May 31)
• September 15 (for income earned June 1 through August 31)
• January 15 of the following year (for income earned September 1 through December 31)

If a due date falls on a weekend or holiday, the deadline moves to the next business day. Missing estimated payments could result in penalties, even if you pay the full amount at tax time.

Set money aside throughout the year

Because side hustle income doesn’t come with automatic tax withholding, it’s smart to set money aside as you earn it. Many self-employed workers choose to set aside around 25% to 30% of their side hustle income to cover federal taxes. However, the exact amount you’ll need will depend on your total income, tax bracket, self-employment tax, and state taxes.

Here are some simple ways to stay ahead:

• Move a percentage of every payment into a separate savings account.
• Automate transfers so you’re not tempted to spend it.
• Use accounting software or a spreadsheet to monitor your business activity monthly.
• Treat taxes as a regular business expense to prevent a last-minute scramble.

Your side hustle could change your tax bracket

The U.S. has a progressive tax system, which means different portions of your income are taxed at different rates. This is important because your side hustle income doesn’t get taxed separately. Instead it stacks on top of your other income. So if you earn more overall, you could move into a higher tax bracket.

To understand how it works, it helps to look at the current federal income tax brackets. Tax brackets are adjusted each year for inflation. For 2025, federal income tax rates for single filers are:

• 10% on income up to $11,925
• 12% on income over $11,925
• 22% on income over $48,475
• 24% on income over $103,350
• 32% on income over $197,300
• 35% on income over $250,525
• 37% on income over $626,350

These brackets apply to single filers. Rates differ for married couples filing jointly and other filing statuses. Also keep in mind that if you move into a higher bracket, only the income above that threshold is taxed at the higher rate — not your entire income.

Don’t forget about state taxes

Federal taxes aren’t the only thing to consider. Depending on where you live, you might also owe state income tax on your side hustle earnings. Most states have their own income tax systems, and your side hustle income is generally added to your other taxable income at the state level.

A few states don’t have a state income tax, but most do. That means your total tax bill could be higher than you expect if you’re only planning for federal taxes.

Use deductions to your advantage

One benefit of being self-employed is the ability to deduct ordinary and necessary business expenses. Common side hustle deductions include:

• Home office expenses if you use part of your home regularly and exclusively for business
• Business mileage if you drive for work
• Supplies, equipment, or software used for your side hustle
• Advertising and marketing costs
• Business-related phone or internet expenses

These deductions reduce your net profit, which can lower both your income tax and self-employment tax.

Lower your tax bill with credits and retirement contributions

While deductions reduce your business profit, credits and retirement contributions can also help shrink your overall tax bill. Depending on your situation, you might be able to:

• Contribute to a Simplified Employee Pension (SEP) individual retirement account (IRA). This is a retirement plan designed for self-employed workers that allows tax-deductible contributions.
• Contribute to a Solo 401(k). This also lets self-employed individuals set aside pretax income for retirement.
• Claim the earned income tax credit if you qualify. This a refundable credit for lower- to moderate-income workers.
• Deduct self-employed health insurance premiums. This is possible if you pay for your own coverage.

Treat your side hustle like a business

Making money with a side hustle can open doors financially, but it also comes with added responsibility at tax time. As long as you track your income carefully, and plan ahead for estimated payments, you can avoid unpleasant surprises.

A little preparation throughout the year goes a long way. If your tax situation starts to feel complicated, a tax professional can help you sort through it and give you peace of mind (because running a business is already demanding enough).

Keep reading: Best side hustle apps for making money