Side Hustle Taxes: What You Need to Know
Side hustle income is taxable, and because no one withholds tax for you, it's easy to be caught out. Here's how side income is taxed, self-employment tax, the forms you might get, quarterly estimated payments, and deductions that lower your bill.
By Pond.com editors Updated 3 min read
Quick answer
- All side hustle income is taxable, whether or not you receive a tax form.
- If you earn $400 or more in net self-employment income, you generally owe self-employment tax of 15.3% on top of income tax.
- You may receive a 1099-NEC from clients or a 1099-K from payment apps and marketplaces.
- If you expect to owe $1,000 or more, you may need to make quarterly estimated tax payments.
- Deduct legitimate business expenses to lower the profit you're taxed on, and keep good records.
Side hustles are a great way to earn extra money, but the tax side catches many people off guard. With a regular job, your employer withholds tax from each paycheck. With side income, that's up to you.
This article is general information, not tax advice. Tax rules change, so check IRS.gov or a tax professional for your situation.
All income counts
Income from freelancing, rideshare and delivery driving, selling crafts, pet sitting, reselling and other gig work is taxable, whether or not you get a tax form. You report it on your return, usually on Schedule C if it's a business.
Self-employment tax
If your net self-employment earnings are $400 or more, you generally owe self-employment tax of 15.3%: 12.4% for Social Security (up to a yearly wage limit) and 2.9% for Medicare. It covers the share an employer would normally pay. You can deduct half of it when figuring your income tax.
This is on top of regular income tax, which is why side income can be taxed more heavily than people expect.
Tax forms you might receive
| Form | From | When |
|---|---|---|
| 1099-NEC | Clients who paid you as a contractor | Generally if they paid you $600 or more in a year; the threshold rises to $2,000 for payments made from 2026 |
| 1099-K | Payment apps and online marketplaces | Generally above $20,000 and 200 transactions a year |
| 1099-MISC | Some other payments, like rents or prizes | Varies |
Check every form against your records. Payments from friends and family for personal reasons aren't business income, even if they arrive through a payment app.
Quarterly estimated taxes
If you expect to owe $1,000 or more when you file, you may need to pay estimated tax during the year. Payments are usually due around April 15, June 15, September 15 and January 15.
If you also have a W-2 job, an easier option can be to raise your withholding at work with a new Form W-4 to cover your side income.
Deductions that lower your bill
You're taxed on profit, not total income. Common deductible expenses include:
- Supplies, equipment and software used for the business
- Mileage for business driving, at the IRS standard rate, or actual vehicle costs
- A home office used regularly and only for the business
- Part of your phone and internet used for the business
- Platform and payment fees, advertising and shipping
- Health insurance premiums and retirement contributions, if you qualify
Many sole proprietors can also take the qualified business income deduction, worth up to 20% of qualifying profit.
Keep good records
- Use a separate bank account or card for side income and expenses.
- Save receipts and keep a simple spreadsheet or app log.
- Track mileage as you go.
- Set aside 25% to 30% of each payment for taxes.
Common questions
Generally, yes. All income must be reported. Self-employment tax applies once your net earnings from self-employment reach $400 for the year. Even if you earn less, the profit may still be subject to income tax.
Many side hustlers set aside about 25% to 30% of their profit for federal and state taxes. The right amount depends on your tax bracket, state and other income. If you have a W-2 job, you can also raise your paycheck withholding instead.
If you owe enough, the IRS may charge an underpayment penalty, calculated like interest. You can often avoid it by paying at least as much as last year's total tax through withholding and estimates, within the safe-harbor rules.