Extra Side Income: How Much Do You Actually Keep?
A higher tax bracket does not mean all of your income is taxed at the higher rate. Learn how marginal rates, self-employment tax, QBI, and California income tax affect what you actually keep from another project.
The Short Answer
Evan’s new project starts at $8,500.
When the client asks for work outside the original scope, another $1,500 brings the total fee to:
$10,000
That does not mean the entire $10,000 is taxed at whatever federal bracket Evan and Daisy eventually reach.
Federal income tax is marginal.
Income moves through tax brackets in layers.
For married taxpayers filing jointly in 2024:
22% bracket
→ taxable income over $94,300 through $201,050
24% bracket
→ taxable income over $201,050 through $383,900
Only the taxable income falling within a bracket is taxed at that bracket’s rate.
IRS — 2024 Federal Tax Rate Tables
But the federal bracket is only one part of what Evan keeps.
Additional consulting profit may also affect:
self-employment tax,
the qualified business income deduction,
California income tax,
and the amount of tax Evan needs to pay during the year.
So the useful question is not:
“What tax bracket am I in?”
It is:
“How much additional tax does this additional profit actually create?”
1. A higher bracket does not re-tax all of Evan’s income
This is the first distinction Evan needs.
Suppose additional consulting profit pushes part of Evan and Daisy’s taxable income from the 22% bracket into the 24% bracket.
The income already taxed at lower rates does not suddenly become taxed at 24%.
Only the next layer of taxable income falling inside the 24% bracket gets that rate.
For 2024 married filing jointly:
22%
→ over $94,300 through $201,050
24%
→ over $201,050 through $383,900
IRS — 2024 Federal Tax Rate Tables
That is what makes a marginal tax rate useful.
It tells Evan something about the tax on the next dollar.
It does not tell him the tax rate on everything the household earned.
And it does not, by itself, tell him how much of the next consulting project he will actually keep.
2. Start with additional profit, not the project fee
The client ultimately agrees to pay Evan:
$10,000
That is project revenue.
It is not automatically the same as the project’s additional taxable business profit.
If completing the project also creates deductible business expenses, those expenses generally reduce the net business profit that feeds into the tax calculation.
The distinction is simple:
Revenue
→ what the client pays
Net business profit
→ what remains after deductible business expenses
For a Schedule C business, tax generally begins with business profit rather than simply the amount deposited into the bank.
IRS — Publication 334, Tax Guide for Small Business
That matters for pricing.
A $10,000 project with very little additional cost is economically different from a $10,000 project that requires substantial additional business spending.
The fee is the first number.
It is not the last one.
3. Self-employment tax adds another layer
Additional consulting profit may also generate self-employment tax.
The general self-employment tax rate is:
15.3%
made up of:
12.4% Social Security tax
and
2.9% Medicare tax.
The calculation generally starts with 92.35% of net earnings from self-employment.
Evan’s W-2 wages also matter.
For 2024, the Social Security wage base for combined wages and applicable net self-employment earnings was:
$168,600
If Evan’s W-2 wages have already used part of that wage base, less of the Social Security portion may remain for his consulting income.
If his wages have already reached the wage base, additional self-employment earnings generally are not subject to another 12.4% Social Security tax.
The Medicare portion does not have the same wage-base ceiling.
At higher combined wage and self-employment income, the 0.9% Additional Medicare Tax may add another layer as well.
For married taxpayers filing jointly, the threshold is:
$250,000
IRS — Topic No. 560, Additional Medicare Tax
So this shortcut does not work:
“I’m in the 24% bracket, so I just add 15.3%.”
The taxes are calculated on different bases, and some of the pieces interact.
4. QBI may reduce federal income tax — but Evan’s consulting matters
Evan’s consulting profit may also generate a federal qualified business income deduction under §199A.
For an eligible taxpayer, the QBI deduction can generally be as much as:
20% of qualified business income,
subject to taxable-income and other limitations.
But the type of business matters.
The §199A rules generally treat consulting as a specified service trade or business, or SSTB, when the business provides professional advice and counsel to help clients achieve goals or solve problems.
Evan’s project includes customer profitability analysis, a pricing review, and recommendations to the client.
Those facts make his advisory consulting work appear likely to fall within the consulting SSTB rules.
The exact classification still depends on the nature of the services actually performed.
IRS — 2024 Instructions for Form 8995-A
For 2024 married filing jointly:
Taxable income before the QBI deduction at or below
→ $383,900
SSTB income may generally still be taken into account for QBI purposes.
Taxable income above $383,900 through
→ $483,900
The amount of SSTB income that can be taken into account is generally phased out.
Above:
$483,900
SSTB income generally can no longer be taken into account for the QBI deduction.
IRS — 2024 Instructions for Form 8995-A
So another shortcut fails:
“I made $10,000 more, so I automatically deduct 20%.”
Maybe.
Maybe not.
The household’s taxable income matters.
And even when QBI is available, the deduction generally reduces federal taxable income.
It does not erase the underlying Schedule C profit or the self-employment tax on that profit.
5. California takes its own share
Evan also has California income tax to consider.
California uses graduated tax brackets too.
For married/RDP taxpayers filing jointly in 2024, the 9.3% bracket applied to California taxable income over:
$141,212
through:
$721,318
Only the income falling inside that bracket is taxed at 9.3%.
California FTB — 2024 Form 540 Booklet
So California creates the same basic marginal-rate distinction as federal tax.
Moving into the 9.3% bracket does not cause all California taxable income to be taxed at 9.3%.
But California creates another important difference.
California does not allow the federal §199A qualified business income deduction.
So even if Evan receives a federal QBI deduction from his consulting activity, he should not assume the same deduction reduces California taxable income.
Federal and California need to be modeled separately.
California FTB — Summary of Federal Income Tax Changes
6. There is no single “tax percentage” for the next project
This is where Evan’s projection becomes useful.
A practical estimate starts with:
Additional project revenue
minus deductible business expenses
equals additional net business profit
Then Evan estimates the incremental effect of:
federal income tax,
self-employment tax,
California income tax,
and any available federal QBI deduction.
What remains is an estimate of the project’s additional after-tax profit.
That is different from simply applying one percentage to the invoice.
For example:
“My federal marginal rate is 24%, so I keep 76%.”
is incomplete.
But this is not reliable either:
“24% + 15.3% + 9.3% means I lose 48.6%.”
Self-employment tax has its own calculation.
W-2 wages can affect the Social Security portion.
A deduction for part of self-employment tax can affect the federal income-tax calculation.
QBI may reduce federal taxable income.
California does not allow the federal QBI deduction.
And additional income can cross more than one marginal bracket.
Evan’s marginal federal bracket is one input.
His incremental tax on the project is the result of all the applicable layers working together.
There is one more distinction.
How much tax the project ultimately creates is not necessarily the same as how much Evan needs to pay during the year.
Higher consulting profit may require additional W-2 withholding, estimated-tax payments, or both.
That prepayment question is separate from the after-tax value of the project.
IRS — Publication 505, Tax Withholding and Estimated Tax
7. Taxes still do not tell Evan whether the project was worth it
By late in the Episode, the tax calculation is becoming familiar to Evan.
The harder number is hours.
He initially estimates:
45 hours
for an:
$8,500
project.
He changes the estimate to:
50 hours
Then:
60 hours
By halfway through week three, his time log already shows:
38.5 hours.
Then the client asks for one more analysis.
A year earlier, Evan probably would have said yes.
Instead, he looks at the original proposal.
Then the time log.
And he charges another:
$1,500
The project fee becomes:
$10,000
But the hours are still moving.
That changes the question.
Suppose two projects each produce the same after-tax profit.
One takes 40 hours.
The other takes 80.
They are not economically the same project.
A useful pricing review therefore needs at least three numbers:
Project profit before tax.
Estimated profit after tax.
Hours required to earn it.
Evan had become comfortable with the tax calculation.
The last number was newer.
Tax tells Evan how much of the profit he may keep.
It does not tell him what an evening is worth.
8. What changed by 2026?
The basic marginal-tax concept has not changed.
Federal income continues to move through graduated tax brackets.
For married taxpayers filing jointly in 2026:
22% bracket begins above
→ $100,800
24% bracket begins above
→ $211,400
The federal rates of:
10%
12%
22%
24%
32%
35%
37%
remain in place for 2026.
IRS — 2026 Inflation Adjustments
The Social Security wage base also increased:
2024
→ $168,600
2026
→ $184,500
A more important current-law change involves QBI.
The 2025 legislation made the federal §199A QBI deduction permanent and expanded the phase-in ranges used for certain limitations.
For 2026 married filing jointly:
QBI threshold
→ $403,500
SSTB phase-in range extends through
→ $553,500
IRS — 2026 Inflation Adjustments
California still does not conform to the federal §199A deduction.
California FTB — Summary of Federal Income Tax Changes
The numbers change.
The planning question does not.
How much additional profit does the next project create?
How much of that profit is left after the taxes that actually apply?
And how many hours did Evan have to give up to earn it?
Common Mistakes
“If I move into the 24% bracket, all of my income is now taxed at 24%.”
No. Only taxable income falling within that bracket is taxed at the 24% rate.
“If the client pays me $10,000, I calculate tax on $10,000.”
Not necessarily. A business tax calculation generally starts with net business profit after deductible business expenses.
“Self-employment tax is always another 15.3% on top of my marginal federal rate.”
Not exactly. Self-employment tax has its own calculation, and W-2 wages affect how much Social Security tax may remain.
“I can just subtract 20% for QBI.”
No. QBI has its own requirements and limitations, and Evan’s advisory consulting work appears likely to fall within the SSTB rules.
“If I get a federal QBI deduction, California gives me the same deduction.”
No. California does not conform to the federal §199A QBI deduction.
“If I know the after-tax profit, I know whether the project is worth taking.”
Not necessarily.
Taxes price the government’s share.
They do not price Evan’s time.
The Key Distinction
Evan needs to separate four numbers.
- Project revenue tells him what the client pays.
- Net business profit tells him what the project actually adds to the business before tax.
- Incremental tax tells him how the federal and California tax rules affect that additional profit.
- Hours tell him what Evan had to give up to earn it.
A tax bracket does not tell Evan how much of the project he keeps.
And the amount he keeps does not tell him whether the project was worth doing.
Reference
Federal Marginal Tax Rates
IRS — Revenue Procedure 2023-34 / 2024 Inflation Adjustments
Official 2024 federal tax-rate tables, including the married-filing-jointly 22% and 24% brackets applicable to Evan’s story year.
IRS — 2024 Tax Rate Tables
IRS — Federal Income Tax Rates and Brackets
IRS explanation of graduated federal tax brackets and marginal tax rates.
IRS — Federal Income Tax Rates and Brackets
Self-Employment Tax
IRS — Self-Employment Tax: Social Security and Medicare Taxes
IRS guidance on the 15.3% general rate, the Social Security wage base, and coordination between W-2 wages and self-employment earnings.
IRS — Self-Employment Tax
IRS — Topic No. 560, Additional Medicare Tax
IRS guidance on the 0.9% Additional Medicare Tax and the $250,000 married-filing-jointly threshold.
IRS — Topic No. 560
Qualified Business Income
IRS — 2024 Instructions for Form 8995-A
Historical guidance on SSTBs, consulting services, and the 2024 $383,900 / $483,900 thresholds applicable to Evan’s story year.
IRS — 2024 Form 8995-A Instructions
IRS — Publication 334, Tax Guide for Small Business
Current IRS guidance reflecting the continued §199A deduction and current small-business tax rules.
IRS — Publication 334
IRS — Revenue Procedure 2025-32 / 2026 Inflation Adjustments
Official 2026 inflation-adjusted §199A threshold and phase-in amounts.
IRS — 2026 Inflation Adjustments
California
California FTB — 2024 Personal Income Tax Booklet
Official 2024 California married/RDP filing-jointly tax-rate schedule applicable to Evan’s story year.
California FTB — 2024 Form 540 Booklet
California FTB — Summary of Federal Income Tax Changes
FTB guidance on California’s federal conformity differences, including the federal §199A qualified business income deduction.
California FTB — Summary of Federal Income Tax Changes
See This Rule in the Story
Episode 08 — One More Client
A referral turns into an $8,500 consulting project.
Then a request outside the original scope adds another $1,500.
The additional revenue feels good.
The tax calculation is becoming familiar to Evan too.
What is less familiar is the other side of the spreadsheet:
How many evenings did it take to earn the money?
By the end, Evan adds one more column.
Hours.
Related Tax Guide
Side Income and Estimated Taxes: How Much Should You Set Aside?
Knowing how much of another project Evan may ultimately keep is only part of the problem.
He also needs enough tax paid during the year.
This Guide explains the difference between a tax reserve, estimated-tax safe harbors, and using W-2 withholding to cover growing side-business income.
Money Meets Tax provides general educational information and is not individualized tax, legal, accounting, investment, or financial advice. Tax laws and guidance change, and the treatment of any transaction depends on the applicable law and specific facts. See the full Disclaimer.