Retirees who earn money from side hustles face self-employment taxes that hit harder than traditional W-2 job taxes. The difference comes down to who pays what portion of Social Security and Medicare taxes.
At a W-2 job, you pay 6.2% for Social Security and 1.45% for Medicare while your employer covers the matching amount. Self-employed workers must cover both portions themselves, paying 12.4% for Social Security and 2.9% for Medicare on their net earnings from self-employment.
The IRS requires anyone earning $400 or more from self-employment income to file Schedule SE with their federal return. This applies even if you already collect Social Security benefits. Self-employment income includes money from driving for apps like Uber, consulting, pet sitting, and freelance writing work.
Several deductions can reduce what you owe. Any documented, necessary, and ordinary business expenses lower your net earnings. If you earn $30,000 from your side hustle and have $10,000 in deductible expenses, your taxable self-employment income drops to $20,000. You can also deduct half of your self-employment tax when calculating adjusted gross income, which lowers your overall tax bill.
The Social Security tax threshold sits at $184,500 for 2026, meaning earnings above that amount escape Social Security taxes. Medicare taxes have no cap, though high earners pay an additional 0.9% Medicare tax when net earnings exceed $200,000 for single filers or $250,000 for married couples filing jointly.
Quarterly tax payments offer another option. Rather than paying the full amount in April, you can spread payments throughout the year to avoid penalties.