Short answer: If you earn $400 or more in net self-employment income in the US, you owe self-employment tax of 15.3% (12.4% Social Security up to $184,500 in 2026, plus 2.9% Medicare with no cap), on top of regular income tax. Because no employer withholds it, you pay as you go through quarterly estimated taxes. A safe habit is to set aside roughly 25% to 30% of your net freelance income for tax.
The 1099 tax shock catches almost every new freelancer, because nobody is withholding tax for you anymore. Here is how it actually works in 2026, in plain English. This is general information for the US, not personal tax advice.
Do you pay self-employment tax on 1099 income?
Yes. If your net earnings from self-employment are $400 or more in the year, the IRS requires you to pay self-employment tax. This covers your Social Security and Medicare contributions, which an employer would normally split with you. As your own boss, you pay both halves, which is why the rate feels high.
What is the self-employment tax rate in 2026?
The self-employment tax rate is 15.3%, made up of 12.4% for Social Security and 2.9% for Medicare, per the IRS. The Social Security portion applies only to the first $184,500 of net earnings in 2026, the year’s wage base, while the Medicare portion has no cap. You can deduct half of your self-employment tax when calculating your income tax, which softens the blow slightly.
What about income tax on top?
Self-employment tax is separate from federal income tax. You also owe income tax on your profit after the standard deduction, which is $16,100 for single filers in 2026. Your income tax rate depends on your total taxable income and bracket. So your real set-aside needs to cover both self-employment tax and income tax together.
How do quarterly estimated taxes work?
Because no employer withholds tax from your freelance income, the IRS expects you to pay estimated taxes four times a year, roughly in April, June, September, and January. You estimate your income, calculate the tax, and pay each quarter to avoid underpayment penalties. Keep it simple: estimate, pay on time, and reconcile when you file your annual return.
How much should you set aside for taxes?
A practical rule for many freelancers is to move 25% to 30% of every payment into a separate tax savings account the moment it lands. Higher earners should lean toward the top of that range or above. This single habit prevents the most common freelance disaster: spending money that was never really yours.
Frequently asked questions
Do I owe taxes on a side hustle under $400?
If your net self-employment earnings are under $400, you do not owe self-employment tax, though the income may still count toward income tax depending on your total earnings.
Can I lower my self-employment tax?
Yes, by deducting legitimate business expenses to reduce net profit, and at higher incomes some freelancers consider an S-corporation election. Speak to a tax professional about whether it fits you.
What happens if I do not pay quarterly?
The IRS can charge underpayment penalties and interest. Paying estimated taxes on time avoids them.
This is general information, not tax advice. Confirm your situation with the IRS or a qualified accountant. The tax reserve calculator in The Finances Toolkit automates the set-aside maths.