The Side Hustle Set-Aside Rule: How Much of Every Payment to Keep Back

A salary comes with tax already taken off. A side hustle payment does not. When a client, a platform or a customer pays you, the full amount lands in your account — but a slice of it belongs to the tax authority, and it is quietly yours to hold until the bill arrives. People who run hustles comfortably share one habit: the day a payment lands, they move a fixed percentage into a separate place and never treat it as spendable. That is the set-aside rule, and it is the difference between tax time being a formality and tax time being a crisis.

Why a percentage, and why on the day it lands

Your eventual tax bill is calculated on your profit — income minus expenses — but profit is only known at year end, while money tempts you all year. Setting aside a percentage of every payment, as it arrives, solves both problems at once: the reserve grows in step with the income that creates the bill, and it is already separated before everyday spending can absorb it. If the year ends and the reserve is bigger than the bill, the surplus is a bonus you pay yourself. If it is smaller, it is smaller by a little — never by the whole bill.

How much to set aside

The right percentage depends on your country and your total income, because side hustle profit stacks on top of any salary and is taxed at your marginal rate. These are widely used starting points for someone with a typical salary plus a growing hustle — starting points, not calculations.

Canada: start at 25 to 30 percent

Canadian side income carries two charges: income tax at your combined federal and provincial marginal rate, and Canada Pension Plan contributions — and as a self-employed person you pay both the employee and the employer portions of CPP. Together they commonly land between a quarter and a third of your profit, which is why the long-standing Canadian rule of thumb is to set aside 25 to 30 percent. Earn enough and the CRA may also require you to pay tax by instalments during the year; a healthy set-aside makes those instalments painless. Our guide to side hustle taxes in Canada covers the reporting side in full.

United Kingdom: start at 25 percent

A UK basic-rate taxpayer pays 20 percent income tax on side profits above the personal allowance, plus Class 4 National Insurance at 6 percent on profits between £12,570 and £50,270 — roughly 26 percent combined, so a 25 percent set-aside keeps you close, and 30 percent buys margin if your salary uses most of your allowance or your rates are higher. One UK-specific trap: once your bill passes £1,000, HMRC usually adds payments on account — advance instalments toward next year’s bill — which is why a first-year filer can owe close to one and a half times what they expected. A reserve built from day one absorbs that surprise too.

Australia: start at 25 to 30 percent

Australian sole traders are taxed at individual rates on their business profit, stacked on any salary, so a set-aside of 25 to 30 percent of profit covers most people with a job plus a hustle. Once your tax payable passes the ATO’s thresholds, the ATO moves you into PAYG instalments — quarterly prepayments of your expected tax. Instalments sound like a burden but are really the set-aside rule made official: the money leaves during the year instead of arriving as one annual shock. Keeping your own set-aside ahead of the ATO’s schedule means every instalment notice is already funded.

Make it automatic

Willpower is not a system, so automate the rule. Hold the set-aside in a separate account or pot from both your personal money and the hustle’s working money — the three-pot setup in managing your side hustle money from day one. Every time a payment lands, transfer the percentage the same day, before any spending. Review the percentage twice a year: if the hustle grows, or your salary changes, adjust it — and if your income is high or complicated, get a professional to set the number precisely. The rule’s power is not the exact percentage. It is that the money is never sitting in your spending account pretending to be yours.

Whether your hustle is one of the simple ideas you can start with almost no money or a second income you have run for years, the set-aside is the habit that keeps it enjoyable. Income you have already reserved the tax on is income you can actually relax about.

General information only — not financial or tax advice. The percentages are rules of thumb; your actual liability depends on your total income, province or state, and circumstances. Consider a qualified tax professional for your situation.