What counts
Freelancing, gig apps, selling things you make, reselling for profit and paid side projects all count. Selling your own used things for less than you paid isn’t taxable.
Tax forms you might get
| Form | Who sends it | When (2026) |
|---|---|---|
| 1099-NEC | Clients who pay you as a contractor | $2,000 or more in the year ($600 before 2026) |
| 1099-K | Payment apps and online marketplaces | Over $20,000 and over 200 payments |
You must report all your income even if you don’t get a form.
How it’s taxed
Your profit (income minus expenses) is taxed twice:
- Income tax, at your normal rate, on top of your wages.
- Self-employment tax of 15.3% on 92.35% of your profit, once it’s over $400. You can deduct half of it.
You may also get the qualified business income deduction: up to 20% of your profit.
How much to set aside
Side income is taxed on top of your wages, so it’s taxed at your top rate plus self-employment tax. With a $60,000 salary, $10,000 of side profit costs about $2,400 in federal tax:
| Part | Amount |
|---|---|
| Self-employment tax | $1,412.96 |
| Federal income tax | $985.66 |
| You keep | $7,601.38 |
| Your side profit | $10,000.00 |
2026 rules. Income tax is lower thanks to the deduction for half the self-employment tax and the qualified business income deduction. In a state with income tax, set aside more.
That’s why 25% to 30% is a sensible amount to set aside, more if your state has an income tax or your salary puts you in the 24% bracket. The self-employment tax calculator works out your own figure, including state tax.
Expenses you can deduct
Costs you need for the work lower your profit, and so both taxes:
- Supplies, tools and software you use for the work.
- Fees charged by the app or marketplace you sell through.
- Part of your phone and internet bill, for the share you use for the business.
- Car costs for business trips (not your commute), using the IRS standard mileage rate or your actual costs.
- A home office, if you use part of your home regularly and only for the business. The simplified method allows $5 a square foot, up to 300 square feet.
Keep receipts and a simple record of what came in and went out. If it’s a hobby, not a business you run to make a profit, you still pay tax on the income but can’t deduct expenses.
Paying the tax
No one takes tax out for you. Either:
- Pay quarterly estimated tax by April 15, June 15, September 15 and January 15. See quarterly estimated taxes.
- Or raise the withholding at your day job with a new W-4, which counts as paid evenly through the year.
You report side profit on Schedule C and self-employment tax on Schedule SE, with your Form 1040. Many states tax the profit too, and some cities charge their own tax on it.