Earning extra money is fantastic, but unlike your W-2 job, no one is withholding taxes for you. Come April, many new freelancers face a nasty surprise.
Self-Employment Tax
When you work for an employer, they pay half of your Social Security and Medicare taxes. When you are self-employed, you pay both halves. This is called the Self-Employment Tax, and it's a flat 15.3% on your net profit.
Income Tax
On top of that 15.3%, you also owe your regular federal and state income tax on that money. If you are in the 22% tax bracket, your total tax rate on side hustle income could be 37.3%!
The Solution: The 30% Rule
As a general rule of thumb, transfer 30% of every single payment you receive into a separate savings account. Do not touch it until tax time. If you over-save, you get a bonus. If you under-save, you're in debt to the IRS.
Calculate Your Side Hustle Take-Home
See your actual profit after taxes and expenses. Use Calculator →
