The Retirement/Side Hustle Combo That Creates a Surprise Tax Bill — and How To Plan Better
Nearly 1 in 5 (19.5%) people ages 65 and up still work, even if they’re technically considered retired, according to a 2025 report from the U.S. Bureau of Labor Statistics. Most people in this demographic work part-time. Some take on a side hustle or do consulting. While this can help with financial security, it also comes with some surprising tax implications.
Before taking on a side hustle in retirement, it helps to know how it’ll impact your other sources of income (and taxes). That way, you can plan ahead and avoid an unpleasant surprise come tax time.
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Your Side Hustle Could Mean Higher Social Security Taxes
If you earn at least $400 in net earnings from a side hustle, you’ll generally have to pay self-employment tax on 92.35% of your total profit. As per the IRS, the typical tax rate is 15.3%. This includes:
12.4% for Social Security
2.9% for Medicare
Unfortunately, retirees who’ve already started collecting Social Security aren’t exempt from this rule. Your side hustle earnings could also affect your overall tax situation and your Social Security benefits.
“With the added earnings comes increased taxability of some portion of your Social Security benefits, in addition to tax on the side business,” said Geoff Knight, a tax expert and founder of File Tax.
Normally, the taxable amount of your Social Security income ranges from 50% to 85%. For example, the Social Security Administration (SSA) requires you to pay taxes on up to 85% of your benefits if you:
File a federal tax return as an “individual” and earn over $25,000 (combined income)
File a joint tax return and earn over $32,000 (combined income)
If you earn below a certain income threshold, your benefits might not be taxable at all. But if your side hustle earnings put you into a higher income threshold, it could more of your Social Security income taxable.
Your Medicare Premiums Could Increase
Earning money through a side hustle could put your total income over Medicare’s Income-Related Monthly Adjustment Amount (IRMAA) threshold. This could mean higher Medicare premiums.
“Even a small amount of income that drives their total income over a IRMAA threshold (the extra you pay for Medicare when you have high income) can act like a pretty major de facto tax,” said Caleb Moyer, owner and enrolled agent at Moyer Tax Services.
The challenge here is that this doesn’t show up immediately. That’s because IRMAA adjustments are based on your income from two years ago, per MedicareResources.org. As an example, this means your 2026 Medicare premium is based on your 2024 income tax return. Your 2027 premium will be based on your 2025 return.
For 2026, an IRMAA surcharge will be added to your Medicare premium (Part B) if your 2024 income was above $109,000 ($218,000 if married filing jointly). The surcharge ranges from $81.20 to $487 monthly, depending on your income.
Other Tax Implications From Your Side Hustle
Earning income from a side hustle could also have tax repercussions on your retirement accounts or other investments.
“Side hustle income can make your total income reach a high [enough] level to shift your capital gains from a taxable brokerage account to a higher bracket,” Knight said. “If two people retire and sell the same investment, one can end up owing a lot more than the other because he/she had a side job while the other did not.”
You may also lose eligibility for certain tax deductions or credits due to entering a higher tax bracket. Take the Saver’s Credit, for example. This nonrefundable credit could lower your tax bill by up to $1,000 (or $2,000 for joint filers), as long as your adjusted gross income doesn’t exceed the income threshold.
What You Can Do
You can plan your retirement income better so you don’t get hit with a surprise tax bill. Knight suggested looking over all income sources at once, rather than one at a time.
“The payments into pension plans, the withdrawals from them, and Social Security and side income all seem manageable individually, but it is the sum of these that will be subject to tax bills,” he said.
Working with a tax professional can help. And if you’re concerned about the IRMAA surcharge, consider making a deductible IRA contribution. This could lower your taxable income (including Social Security income), and possibly put you below the IRMAA threshold.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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