Just the Tip:
Once you’re self-employed, you owe a 15.3% self-employment tax for Social Security and Medicare in addition to income tax, and no employer withholds it for you. Set aside part of every payment the day it arrives and send it to the IRS each quarter, so April never brings a bill you can’t cover.
On a W-2 paycheck, your employer pays half of that 15.3% and withholds the other half, so you never see the full amount. Freelance, drive for an app, or sell on the side, and both halves become yours. Social Security takes 12.4%, and Medicare takes 2.9%.
The tax applies to 92.35% of your net profit, so it takes about 14.1% of each dollar you clear, up to Social Security’s annual earnings cap, where only the Medicare part continues. On $10,000 of side-gig profit, that’s roughly $1,413 before any income tax. It starts at just $400 of net earnings, and the standard deduction never touches it. A side hustle too small to owe income tax can still owe this one.
Only business expenses shrink it. Each deductible expense lowers your profit and trims both taxes at once, so log mileage, supplies, and software from day one.
The day a payment arrives, move 14% of it into a separate savings account for self-employment tax. Add your federal income tax bracket and any state income tax rate on top, and don’t spend from that account.
Pay from it four times a year as estimated tax through IRS Direct Pay or your IRS Online Account. The deadlines are April 15, June 15, Sept. 15, and Jan. 15. Paying a quarter of last year’s total tax each time keeps you clear of the underpayment penalty even if this year’s bill runs higher. Use 110% of last year’s tax instead if last year’s adjusted gross income topped $150,000. If you also hold a W-2 job, a new Form W-4 with extra withholding can cover the tax on your side income without quarterly payments.
Start with the next payment you receive. Money that goes straight to the tax account never gets spent by mistake.
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