Self-employment tax kicks in once your side hustle reaches $400 in net profit for the year, not $600. Many freelancers wrongly believe the $600 threshold applies to taxes, when it actually only determines whether a client must send you a 1099 form.
You owe 15.3% in self-employment tax on net earnings above $400. That breaks down to 12.4% for Social Security and 2.9% for Medicare. This applies even if you owe no regular federal income tax.
The $400 rule applies only to self-employment tax, not income tax. For 2025, the standard deduction stands at $15,000 for single filers and $30,000 for married couples filing jointly, which may wipe out your income tax liability while leaving SE tax intact.
You report income and expenses on Schedule C, then calculate self-employment tax on Schedule SE. The IRS expects you to pay taxes on all self-employment income whether or not you receive a 1099 form.
If you expect to owe more than $1,000 in federal taxes (including self-employment tax) for the year, the IRS requires quarterly estimated tax payments due around the 15th of January, April, June, and September. Ignoring these payments triggers a 0.5% monthly penalty plus interest.
Tracking expenses reduces your net profit and can lower your tax bill. Deductions for supplies, fees, and mileage chip away at your taxable income. A $450 annual side income with $100 in deductible expenses drops below the $400 threshold, saving roughly $68.85 in self-employment tax.