Side Hustle Taxes: How Much to Set Aside From Each Payment

By CreditMeadow Editorial Team · Updated October 16, 2026

Side hustle taxes come down to one habit: each time a payment arrives, move a fixed share of it into a separate account so the tax is already saved when it comes due. Income from side work is taxable even when no one sends you a tax form, and once your net earnings from self-employment reach $400, you also owe self-employment tax on top of income tax.

This guide covers federal tax on side work you do as an independent contractor: what counts as income, which forms you might receive in 2026, how self-employment tax works, which costs reduce the bill, and a worked example of a set-aside rate.

What counts as taxable side income

The IRS says you must report income from gig work on a tax return even if it comes from part-time, temporary or side work, isn't reported on an information return such as a Form 1099-K, 1099-MISC, 1099-NEC or W-2, and is paid in any form, including cash, property, goods or virtual currency.

Gig work, in the IRS's description, includes driving for booked rides or deliveries, renting out property, providing creative or professional services and other temporary, on-demand or freelance work. Selling things counts too: on its Form 1099-K page, the IRS says you must report payments for goods you sell, including personal items such as clothing or furniture sold at a gain.

Not everything that lands in a payment app is income. Money from friends and family as a gift or as repayment for a personal expense, like splitting a meal or getting rent back from a roommate, isn't taxable income. The IRS suggests marking these payments as non-business in the app when possible.

Which 1099 forms you may get in 2026

Payers and platforms send forms only above certain thresholds, and those thresholds changed recently. As the IRS pages state them in October 2026:

Sources: the IRS Form 1099-NEC FAQ, its page on who must file a Form 1099 and the Form 1099-K page. You should receive copies by January 31. The thresholds decide only whether a form is sent, not what you owe: you must report all income, even if you get no Form 1099.

Self-employment tax: the part no employer withholds

When you work for an employer, Social Security and Medicare taxes come out of each paycheck. On side work, you pay them yourself as self-employment tax. According to the IRS:

• The rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare.
• The threshold is $400. You owe it, and file Schedule SE, if your net earnings from self-employment were $400 or more. The IRS gig work page adds that you must file a tax return at that level, even if it's a side job.
• It isn't figured on your whole profit. Under the regular method, IRS Publication 334 says to multiply your self-employment earnings by 92.35% to get your net earnings.
• Part of it is deductible. You can deduct the employer-equivalent portion of the tax when figuring your adjusted gross income. That lowers your income tax, not the self-employment tax itself.
• Age doesn't matter. The rules apply even if you already receive Social Security or Medicare.

Together, 15.3% of 92.35% works out to about 14.1% of profit, before any income tax.

Business expenses that lower the bill

Both taxes are figured on profit, so every deductible cost lowers them. To be deductible, Publication 334 says, a business expense must be both ordinary and necessary: ordinary means common and accepted in your field, and necessary means helpful and appropriate for your business.

Two rules come up often in side work:

• A car used for work and personal trips. You must divide the expenses between business and personal use, for example by the miles driven for each purpose.
• A home office. The IRS requires that you regularly use part of your home exclusively for business and, generally, that it is your principal place of business, with exceptions such as a space where you regularly meet clients. A simplified option lets you multiply a prescribed rate by the office's square footage instead of tracking actual expenses.

Deductions hold up only with records. The IRS lets you choose any recordkeeping system that clearly shows your income and expenses, but you must be able to prove certain elements of expenses to deduct them, and you must keep records as long as needed to prove the income or deductions on a return.

How much to set aside from each payment

Suppose your side gig brings in $1,000 a month, with $200 a month of supplies and fees. Your profit is $800 a month, or $9,600 a year. For the example, assume a placeholder income tax rate of 12% on that profit. It is not your rate or a recommendation; yours depends on your total income, deductions and credits.

That is about 26.1% of profit. Rounding up to 27% leaves a small cushion: $2,592 over the year, $83.56 more than the estimate. The estimate ignores the deduction for part of self-employment tax and any other deductions or credits, which would lower the real bill.

Applied to each job as the money comes in:

A month like this sets aside $216. After your first full year, compare the rate with the tax you actually owed and adjust it.

When to pay: quarterly due dates or more withholding

Individuals generally have to make estimated tax payments if they expect to owe $1,000 or more when they file, according to the IRS, and estimated tax covers self-employment tax as well as income tax. The example's $2,508.44 is above that line if nothing else covers it.

For 2026 income, that makes the last payment due Jan. 15, 2027 (IRS). If a due date falls on a Saturday, Sunday or legal holiday, the payment is due the next business day. Split into four equal payments, the example's estimate is about $627 each.

If you also have a job with a paycheck, there's another route. The IRS says you may avoid estimated payments on gig income by having more tax withheld: use the Tax Withholding Estimator, then give your employer a new Form W-4. Either way, most taxpayers avoid the underpayment penalty if they owe less than $1,000 after withholding and credits, or paid at least 90% of this year's tax or 100% of last year's, whichever is smaller. Special rules apply to certain higher-income taxpayers.

If your side income swings a lot from month to month, step 5 of how to budget on irregular income walks through a year of quarterly set-asides.

Keep the tax money in its own account

Tax money left in checking tends to get spent. Publication 334 suggests keeping a separate bank account for your business, and a savings account used only for taxes does the same job for the set-aside. Move the 27% the day each payment arrives, and pay the quarterly amounts from that account only.

Treat the account like a sinking fund: a known bill with known due dates, filled a little at a time. In a zero-based budget, give the set-aside its own line so every side-gig dollar has a job before you spend it.

Key takeaways

• Side income is taxable even without a Form 1099, whether it's paid in cash, through an app or in virtual currency.
• In 2026, a 1099-NEC generally goes out for $2,000 or more, and a payment app's 1099-K for over $20,000 in more than 200 transactions; neither threshold changes what you report.
• Self-employment tax of 15.3% applies once net earnings reach $400, figured on 92.35% of your earnings.
• Deduct ordinary and necessary expenses, and keep records that prove them.
• Set aside a fixed share of every payment's profit in a separate account, then pay quarterly or raise your W-4 withholding.