How side hustle income is taxed: the forms and the 15.3%

The first surprise for most people with a side business is not the income tax. It is a second tax they have never seen on a pay stub, because on a pay stub half of it is paid by the employer and never shown.

That tax is self-employment tax: Social Security and Medicare, at a combined 15.3%. An employee pays 7.65% and the employer pays the other 7.65%. Someone working for themselves is both, and pays both.

The three forms

Schedule C reports the business's income and expenses. The difference is net profit, and everything else is calculated from it.
Schedule SE calculates self-employment tax on that profit.
Form 1099-K is what a payment platform sends when a seller's gross payments exceed $20,000 and 200 transactions in the year — the threshold the One, Big, Beautiful Bill restored in July 2025. A 1099-NEC arrives from a client that paid $600 or more directly.

Fact

No form does not mean no tax
The forms are how the IRS learns about income. The income is taxable whether or not a form arrives. A seller under the 1099-K threshold still reports the profit on Schedule C.

The arithmetic on $10,000 of net profit

Assume a side business with $10,000 of profit after expenses, owned by someone whose day job puts them in the 22% federal bracket. These are round figures chosen to show the mechanism; state tax is left out.

Wealth Signal calculation

Self-employment tax is $1,413, not $1,530
Self-employment tax is charged on 92.35% of net profit, not all of it: $10,000 × 0.9235 = $9,235. At 15.3% that is $1,413. Half of it — $706 — is then deductible against income.

Income tax is charged on profit less that half: $10,000 − $706 = $9,294. And since the 20% qualified business income deduction was made permanent in 2025, a further 20% of that comes off before the rate applies: $9,294 × 0.8 = $7,435. At 22% the income tax is $1,636.

Federal tax on $10,000 of side-business profit, 22% bracket, 2026 rules
Line	Amount	How
Net profit	$10,000	Schedule C
Self-employment tax	$1,413	15.3% × 92.35% of profit
Deductible half of SE tax	−$706	Above-the-line deduction
Qualified business income deduction	−$1,859	20% of $9,294
Income tax	$1,636	22% of $7,435
Total federal tax	$3,049	30.5% of profit

Wealth Signal calculation from the rates on IRS Schedule SE and the QBI deduction rules. Illustrative; state tax and credits omitted.

Thirty percent is the number to keep in mind. It is why people who move from a salary to the same gross income freelancing feel poorer, and why the guide on what to charge starts from the tax, not the hours.

What reduces the bill

Expenses. Every ordinary and necessary cost of the business comes off before any of the above is calculated. Software, supplies, the business miles, the share of a phone plan used for work.
A retirement account. A SEP-IRA or solo 401(k) contribution is deductible against the profit. The 2026 limits are in the 401(k) guide.
The home office deduction, if a part of the home is used regularly and exclusively for the business. The simplified method is $5 per square foot, up to 300 square feet.

The guide on quarterly estimated taxes covers when this has to be paid — because unlike a salary, nothing is withheld, and the IRS charges interest on money that arrives late.

Education, not advice. This guide explains how a rule works and what it costs. It does not know your income, your state or your situation, and Wealth Signal does not publish recommendations. Tax figures are the 2026 federal amounts on the date shown in the sources. Full disclaimer.

How side hustle income is taxed: the forms, the 15.3%, and the deduction

The three forms

The arithmetic on $10,000 of net profit

What reduces the bill

Sources