What is a Side Hustle?

A side hustle is paid work you do in addition to your main job, such as freelancing, driving for a delivery app, or selling products online. It usually runs on evenings, weekends, or whatever hours your primary job leaves open, and it can range from a few hundred dollars a year to a second income that rivals your salary.

For tax purposes, most side hustles are a small business. If you’re paid as an independent contractor or you sell goods or services on your own, the Internal Revenue Service (IRS) treats you as self-employed, which brings a separate tax, different reporting forms, and responsibility for paying tax during the year instead of having it withheld from a paycheck.

Side Hustle Ideas and Examples

Side hustles tend to fall into a few groups, and the group matters because it affects how you’re paid and which tax forms show up.

Gig and platform work covers rideshare driving, food delivery, grocery shopping, and task apps. The platform handles customers and payment, and you’re typically an independent contractor rather than an employee.

Freelancing and consulting usually means selling a skill you already use at work (design, writing, bookkeeping, software, tutoring) directly to clients. It tends to pay more per hour than platform work, and business clients may send you a Form 1099-NEC.

Selling goods includes handmade products, reselling, print-on-demand, and online storefronts. Payment apps and marketplaces report these sales on Form 1099-K once you cross their threshold.

Selling your own used belongings for less than you paid for them isn’t a side hustle in the tax sense. There’s no gain to tax, although the loss isn’t deductible either.

How Side Hustle Taxes Are Calculated

Side hustle profit faces two federal taxes: self-employment tax and ordinary income tax. Profit here means your gross receipts minus ordinary and necessary business expenses, reported on Schedule C.

Self-Employment Tax

If your net earnings from self-employment reach $400 or more in a year, you owe self-employment (SE) tax. It’s the self-employed version of the Social Security and Medicare taxes an employer would otherwise split with you, so you pay both halves.

SE tax = net profit x 92.35% x 15.3%

The 15.3% rate is 12.4% for Social Security plus 2.9% for Medicare. The 92.35% factor stands in for the employer’s half of the tax, which an employee never pays on. Together they work out to about 14.1% of net profit.

The Social Security portion has a ceiling. For 2026, the 12.4% applies only to the first $184,500 of combined wages and self-employment earnings, and your W-2 wages use up that room first. The ceiling is per person, so a spouse’s wages don’t count against yours. The 2.9% Medicare portion has no cap.

This table assumes a single filer with $10,000 of side hustle profit in 2026, which means $9,235 of net SE earnings after the 92.35% factor:

At higher incomes a further 0.9% Additional Medicare Tax applies once combined wages and SE earnings pass $200,000 (single) or $250,000 (married filing jointly, measured across both spouses). It’s figured separately on Form 8959 rather than on Schedule SE.

Income Tax and the QBI Deduction

Your side hustle profit is also added to your other income and taxed at your marginal rate. Two deductions soften that. You can deduct half of your SE tax when calculating adjusted gross income, and many sole proprietors qualify for the qualified business income (QBI) deduction, worth up to 20% of qualified business income, subject to limits at higher incomes. Both reduce income tax only; neither lowers the SE tax itself.

Because a side hustle’s profit lands on top of your salary, it’s taxed at the top of your bracket rather than the bottom. Side hustle income in a ProjectionLab plan defaults to self-employment tax treatment, and the Brackets view in Tax Analytics breaks the resulting tax down by income type.

If an activity isn’t run with a profit motive, the IRS may treat it as a hobby. Hobby income is still taxable and reported on Schedule 1, but business treatment is what lets you deduct your expenses on Schedule C.

Deductible Side Hustle Expenses

Schedule C profit is your receipts minus ordinary and necessary business expenses, and because self-employment tax is figured on that profit, deductible expenses generally lower both income tax and SE tax, though the exact savings depend on your income and how much of the Social Security wage base your wages have already used. Common deductions include business mileage (at the IRS standard mileage rate) or actual vehicle costs, supplies and equipment, platform and payment-processing fees, business insurance, software, and professional services such as tax preparation for the business.

A home office qualifies only if you use that part of your home regularly and exclusively for the business. Personal expenses stay nondeductible even when they overlap with the work, so a phone or car used for both counts only for its business share.

How to Report Side Hustle Income

You report side hustle income on Schedule C and calculate SE tax on Schedule SE, whether or not anyone sends you a tax form. The 1099 thresholds below decide when a payer has to file an information return, not whether the income is taxable.

Form 1099-NEC comes from businesses that pay you $2,000 or more for services during the year. That threshold applies to payments made after December 31, 2025; it was $600 before the One Big Beautiful Bill Act (OBBBA) raised it, and it’s indexed for inflation after 2026. Individuals paying you for personal services, such as a neighbor hiring you to walk a dog, don’t issue one.

Form 1099-K comes from payment apps and online marketplaces when your payments for goods and services exceed $20,000 across more than 200 transactions in the year. Both conditions must be met. OBBBA restored this threshold after earlier legislation had scheduled it to fall as low as $600.

Quarterly Estimated Taxes on a Side Hustle

No employer withholds tax from side hustle income, so you generally need to make estimated tax payments if you expect to owe $1,000 or more when you file, after subtracting withholding and credits. For the 2026 tax year the payments are due April 15, June 15, and September 15 of 2026, and January 15, 2027.

You avoid an underpayment penalty if your withholding and estimated payments cover at least 90% of this year’s tax or 100% of last year’s, whichever is smaller. If your prior-year adjusted gross income was over $150,000 ($75,000 if married filing separately), the prior-year figure becomes 110%.

If you also have a W-2 job, raising your withholding on Form W-4 is an alternative to quarterly payments. Withholding is generally treated as paid evenly through the year, so a larger withholding amount late in the year can still cover the earlier quarters.

Retirement Accounts for Side Hustle Income

Self-employment income opens up retirement accounts your day job can’t offer, such as a Solo 401(k) or a Simplified Employee Pension (SEP) IRA. The catch is how the limits stack. The $24,500 employee deferral limit for 2026 is per person across every 401(k) and 403(b) you participate in, so if you already max it at your day job, a Solo 401(k) for the side hustle is limited to the employer-side contribution, roughly 20% of your net profit after subtracting the deductible half of SE tax.

Frequently Asked Questions

Do I have to pay taxes on a side hustle? Yes. All side hustle profit is taxable income, and once your net earnings from self-employment reach $400 you also owe SE tax. That’s true whether or not you receive a 1099.

How much can you make on a side hustle before paying taxes? SE tax starts at $400 of net earnings. There’s no separate income tax exemption for side income, so every dollar of profit is taxable, although you may owe no income tax if your total income stays below your standard deduction.

Should I start an LLC for my side hustle? A single-member limited liability company (LLC) doesn’t change your federal taxes by default. The IRS disregards it, so you still file Schedule C and pay SE tax. The case for one is liability separation under state law, which depends on keeping business and personal finances genuinely separate.

Do I need to pay quarterly taxes on side hustle income? Only if you expect to owe $1,000 or more after withholding and credits. If you have a W-2 job, increasing your withholding can cover the side hustle instead.

Does side hustle income count toward Social Security? Yes. Net self-employment earnings you pay SE tax on are credited to your Social Security earnings record, up to the annual wage base when combined with your wages.