Yes, side hustle income is taxable. If you earn $400 or more in net self-employment income, you must report it on your tax return and pay both income tax and self-employment tax (15.3%).
Common side hustles and how they are taxed: driving for Uber or Lyft (1099-NEC, self-employment income), selling on Etsy or eBay (1099-K if over $600 in sales), freelancing on Fiverr or Upwork (1099-NEC), renting on Airbnb (rental income, reported on Schedule E), tutoring or consulting (self-employment income).
The tax rate on side income is often higher than on your main salary. If your W-2 job puts you in the 22% bracket and you earn $10,000 from a side hustle, that $10,000 is taxed at 22% federal income tax PLUS 15.3% self-employment tax. Your combined marginal rate on the side income is effectively 37.3%.
On $10,000 of side income, you might owe roughly $3,730 in combined tax. Many people are surprised by this and fail to set aside enough throughout the year.
Rule of thumb: set aside 30-40% of your side hustle income for taxes.
Deductions that can reduce your side hustle tax bill include supplies and materials, a dedicated workspace at home (home office deduction), vehicle expenses if you drive for work, equipment and tools, software and subscriptions, and marketing and advertising costs.
If your side hustle earns less than $400 net (after expenses), you do not owe self-employment tax, but you may still owe income tax. The $400 threshold only applies to SE tax.
If your side hustle consistently earns significant income, consider making quarterly estimated tax payments to avoid penalties. You should also track all income and expenses using an app or spreadsheet.
Use our self-employment tax calculator to see the tax impact of your side income.