Self-Employment Tax Basics for Side Hustlers
By Cedar & Ledger
When you earn side income without an employer, you usually pay both halves of Social Security and Medicare yourself. That's self-employment tax, and it's on top of income tax, so it surprises a lot of first-time freelancers.
This is general information, not tax advice. Rules and limits change each year; check IRS.gov (Schedule SE) or ask a tax professional. Example numbers are made up.
Quick checklist
- ☐ Track side income and business costs all year
- ☐ Work out your net profit (income minus business expenses)
- ☐ Know the usual $400 net earnings threshold
- ☐ Estimate the tax and set money aside as you earn
- ☐ Remember half of it is usually deductible
Step 1: Does it apply to you?
Generally, if your net earnings from self-employment are $400 or more for the year, you file Schedule SE and owe self-employment tax. This applies even if you also have a W-2 job.
Step 2: How it's figured
The usual rate is 15.3% (12.4% Social Security plus 2.9% Medicare), applied to about 92.35% of your net profit. The Social Security part stops above a yearly wage limit, and very high earners may owe extra Medicare tax.
| (Made-up example) | Amount |
|---|---|
| Side income | $8,000 |
| Business expenses | $2,000 |
| Net profit | $6,000 |
| × 92.35% | $5,541 |
| × 15.3% self-employment tax | about $848 |
Income tax on the profit comes on top of this.
Step 3: Lower it the honest way
Self-employment tax is based on profit, so recording every real business expense matters. Our self-employed tax deductions checklist lists common ones. Half of the self-employment tax is usually deductible on your return, too.
Step 4: Plan for it
Set aside a share of every payment, and if you expect to owe $1,000 or more, look at quarterly payments. Our quarterly estimated taxes guide has the 2027 dates.
Tools that help
The 2027 Side Hustle Income Log printable tracks income, costs and miles month by month, so your profit is ready when you need it. Our side hustle taxes guide helps you pick a set-aside percentage.
Common questions
Do I owe it if I lost money? Generally no; it's based on net profit.
Does a 1099 matter? You owe tax on side income whether or not you get a form.
Is it the same as income tax? No. It's a separate tax shown on Schedule SE and added to your return.
Related template: 2027 Side Hustle Income & Mileage Log. Also see: Side Hustle Income & Expense Tracker
See all Cedar & Ledger templates
Try the free side hustle tax set-aside calculator →
Frequently asked questions
What does this guide cover?
Who owes it, how the 15.3% rate is figured on net profit and how to plan for it. Example numbers.
What are the steps?
1) Does it apply to you?; 2) How it's figured; 3) Lower it the honest way; 4) Plan for it.
Step 1: Does it apply to you?
Generally, if your net earnings from self-employment are $400 or more for the year, you file Schedule SE and owe self-employment tax. This applies even if you also have a W-2 job.
Do I need a template to do this?
No. A notebook or a sheet you build yourself works fine. Cedar & Ledger also sells spreadsheet templates (I'd earn from a purchase); see the template box at the top of this page.
Is this financial advice?
No. It's general information with example numbers only, not financial, tax, legal or medical advice. Use your own numbers and check anything important with a qualified professional or the official source.