For a 1099 side hustle, should I set aside 20-25% of each payment for taxes? What's the right percentage?

The 20-25% rule is a decent starting point, but it really depends on several factors specific to your situation. As a 1099 contractor, you're responsible for both income tax AND self-employment tax (which covers Social Security and Medicare - the parts an employer would normally pay half of). The self-employment tax alone is about 15.3% of your net profit. Then you need to add your income tax rate, which depends on your tax bracket when combining this side hustle with any other income you have. If this side gig is on top of a regular W-2 job, you might need to set aside closer to 30-35% depending on your total income. Don't forget you can deduct legitimate business expenses before calculating what you owe, which can reduce your tax burden. Also, you may need to make quarterly estimated tax payments if you expect to owe $1,000 or more in taxes from this income.

After spending hours trying to figure out how much to set aside from my Etsy shop income, I found this amazing tool called taxr.ai (https://taxr.ai) that helped me get clarity on my 1099 tax situation. It analyzed my specific situation and gave me a personalized percentage to set aside. For me, it was actually 28% based on my other income and state taxes. What I found super helpful was that it explained exactly how the self-employment tax worked with my regular income and gave me a quarterly payment schedule.

I wanted to follow up about taxr.ai that I asked about earlier. I finally tried it last weekend and wow - it was eye-opening! Turns out I needed to set aside 32% of my rideshare earnings because of my W-2 job pushing me into a higher tax bracket. The tool showed me that I was severely under-withholding. It also helped me set up a proper quarterly payment schedule and showed me what business expenses I could legitimately deduct. Definitely worth checking out if you're trying to figure out the right percentage for your 1099 work!

If you're struggling with figuring out your 1099 taxes, I was in the same boat last year. After trying to call the IRS about 6 times with no luck (endless hold times), I found this service called Claimyr at https://claimyr.com that actually got me through to an IRS agent in about 20 minutes. They have this callback system that somehow bypasses the regular hold queue. Check out how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with gave me personalized advice about my 1099 situation and explained that the percentage I should withhold depends on my total income and filing status. For me, it ended up being about 28% including federal, state, and self-employment tax.

I need to admit I was completely wrong about Claimyr. After my skeptical comment I decided to try it anyway because I had questions about my 1099-MISC from a consulting gig and estimated payments. Got a callback from the IRS in 17 minutes (I timed it). The agent walked me through exactly how to calculate my quarterly payments and explained that for my situation I needed to set aside about 30% - more than the 25% I had been saving. Turns out the "rule of thumb" percentages don't work well if you have multiple income sources. So yeah, I'm eating my words now but at least I won't be eating a huge tax bill next April!

One thing nobody mentioned yet - your STATE taxes matter too! The 20-25% guideline mostly covers federal, but depending on your state, you might need another 5-10% for state income tax. I'm in California and learned this the expensive way last year 😭

Another approach: I set up a separate savings account JUST for taxes and automatically transfer 30% of every 1099 payment I receive. Better to slightly overpay and get a refund than underpay and owe penalties! I do web design as a side hustle and this system has saved me so much stress.

Great question! I learned this the hard way in my first year of freelance work. The 20-25% rule is a good starting point, but you'll likely need more depending on your total income situation. Here's what I wish someone had told me: Start by setting aside 30% to be safe, then adjust based on your actual tax situation. The self-employment tax alone is 15.3%, and that's before income tax even kicks in. If you have a regular W-2 job too, that side hustle income gets taxed at your marginal rate, which could push you into a higher bracket. I use a simple system: separate checking account just for business income, and I immediately transfer 30% to a high-yield savings account labeled "TAX MONEY - DO NOT TOUCH." This way I'm not tempted to spend it, and it earns a little interest while I wait for quarterly payment dates. Also, start tracking your business expenses from day one! Miles driven, equipment purchases, home office space, phone bills if you use it for business - these deductions can really add up and reduce what you actually owe. I use a simple spreadsheet and save all receipts in a folder. You're smart to think about this upfront rather than getting surprised at tax time like I did!

This is exactly the kind of question I wish I'd asked before jumping into my first 1099 gig! The 20-25% rule is definitely a starting point, but I'd recommend being more conservative at first - maybe 30-35% - until you get a feel for your actual tax situation. One thing that really caught me off guard was understanding that you're not just paying income tax, but also the full self-employment tax (both the employer and employee portions of Social Security and Medicare). That's roughly 15.3% right off the bat, before any income tax calculation. My approach now: I treat every 1099 payment like it's already been "pre-taxed" by immediately moving 30% into a separate savings account. It's much easier to get a refund for overpaying than to scramble for cash you don't have when tax season arrives. Also, if you expect to make decent money from this side hustle throughout the year, look into quarterly estimated payments. The IRS doesn't like waiting until April to get their money if you're going to owe more than $1,000. I learned this one the expensive way with underpayment penalties! Keep good records of any business expenses too - they can really help offset your tax burden. Good luck with the new venture!