I Started Freelancing or a Side Hustle — What Changes About My Taxes

Your side income is taxable — all of it

Any income you earn from freelancing, gig work, or a side hustle is taxable. It doesn't matter if you didn't receive a 1099 form. It doesn't matter if it was under $600. If you earned it, the IRS expects you to report it. This income goes on Schedule C (Profit or Loss from Business) attached to your Form 1040.

Source: IRS Publication 525 — Taxable and Nontaxable Income

You owe self-employment tax (15.3%) on top of income tax

This is the part that surprises most new freelancers. When you're employed at a company, your employer pays half of your Social Security and Medicare taxes. When you're self-employed, you pay both halves — a combined 15.3% (12.4% Social Security + 2.9% Medicare) on 92.35% of your net self-employment income. This is on top of your regular federal income tax. So if you're in the 22% tax bracket and you earned $10,000 freelancing, you owe roughly $2,200 in income tax plus $1,413 in SE tax — about $3,613 total, or 36% of that income.

Source: IRS Publication 334 — Tax Guide for Small Business, Section: Self-Employment Tax

You can deduct business expenses

The 15.3% rate applies to your net income — revenue minus legitimate business expenses. Common deductions for freelancers include: home office (simplified method: $5/sq ft, up to 300 sq ft = $1,500 max), internet and phone (business-use percentage), software and tools, mileage (67 cents/mile for 2026), advertising, professional development, and health insurance premiums (if you're not eligible through a spouse's employer). Keep receipts. The IRS can ask for proof.

Source: IRS Publication 535 — Business Expenses

You probably need to make quarterly estimated tax payments

If you expect to owe $1,000 or more in taxes for the year (combining income tax and SE tax on your freelance income), the IRS wants you to pay throughout the year — not all at once in April. The quarterly due dates are: April 15, June 15, September 15, and January 15 of the following year. Miss these and you'll owe an underpayment penalty. Use our self-employment tax calculator to estimate how much to set aside, then pay via IRS Direct Pay (irs.gov/payments).

Source: IRS Publication 505 — Tax Withholding and Estimated Tax

You can deduct half of your SE tax from your income

Here's the silver lining: you can deduct the employer-equivalent portion of your SE tax (half of it) from your adjusted gross income. This isn't an itemized deduction — it goes directly on your 1040, reducing your taxable income. On $50,000 of net SE income, that's roughly a $3,532 deduction.

Source: IRS Form 1040, Schedule SE

What about the 1099-K threshold?

Payment platforms like Etsy, PayPal, Venmo, and Stripe are required to send you a 1099-K if your gross payments exceed $20,000 AND you had 200+ transactions. This threshold has changed multiple times in recent years — it was supposed to drop to $600, but the One Big Beautiful Bill Act reverted it to $20,000/200 transactions. Important: whether or not you get a 1099-K, all your income is still taxable. The form is just a reporting mechanism, not a threshold for taxability.

Source: IRS Notice 2024-85 and One Big Beautiful Bill Act (2025)

Set aside 25-30% of every payment

A safe rule of thumb: put 25-30% of every freelance payment into a separate savings account for taxes. This covers both income tax and self-employment tax for most people in the 12-22% tax brackets. If you're in a higher bracket, save 35-40%. This way, quarterly payments and your April bill won't be a surprise.