⚠️ Important Disclaimer
This guide provides general information only. Tax laws are complex and vary by situation. Always consult a qualified tax professional for advice specific to your circumstances. This is not tax advice.
Do I Have to Pay Taxes on Side Hustle Income?
Short answer: Yes, probably.
The IRS considers virtually all income taxable, whether you receive a 1099 form or not. This includes:
- Freelance and gig work (Uber, DoorDash, Fiverr, etc.)
- Survey and reward site earnings (Swagbucks, Freecash, etc.)
- Selling items online (eBay, Poshmark, Etsy)
- Rental income (Airbnb, Turo)
- Cryptocurrency earnings
- Referral bonuses and sign-up bonuses
What About Small Amounts?
There's a common myth that you don't need to report income under $600. This is false.
The $600 threshold only applies to whether a platform is required to send you a 1099 form. You're still legally required to report and pay taxes on ALL income, even if you never receive a 1099.
✅ The Real Rule
If your total self-employment income exceeds $400 in a tax year, you must file a tax return and pay self-employment tax. This is true even if you have a regular W-2 job.
What's Taxable vs Not Taxable
| Income Type | Taxable? | Notes |
|---|---|---|
| Freelance/Gig Work | Yes | Reported as self-employment income |
| Survey Earnings | Yes | Taxable income from platforms |
| Referral Bonuses | Yes | 1099-MISC may be issued over $600 |
| Sign-up Bonuses | Yes | Taxable as miscellaneous income |
| Selling Used Personal Items (at loss) | No | If sold for less than you paid |
| Selling Items for Profit | Yes | Profit is taxable income |
| Cashback/Rebates on Purchases | No* | Generally considered price reduction |
| Credit Card Rewards | No* | Rebate on spending, not income |
| Bank Interest (HYS) | Yes | 1099-INT issued for interest earned |
| Dividend Income | Yes | 1099-DIV issued |
| Cryptocurrency Gains | Yes | Capital gains when sold/exchanged |
| Gift Cards (earned) | Yes | Face value is taxable income |
*Note: Some sign-up bonuses on credit cards/bank accounts that don't require spending may be taxable. Consult a tax professional.
Understanding Self-Employment Tax
If you have side hustle income, you'll likely pay self-employment tax in addition to regular income tax. This is because you're considered self-employed for that income.
Self-Employment Tax Breakdown (2025)
When you work a W-2 job, your employer pays half of these taxes (7.65%). As a self-employed person, you pay both halves.
The good news: You can deduct half of your self-employment tax from your income, reducing your overall tax burden.
Example: Calculating Your Side Hustle Taxes
Let's say you earned $5,000 from various side hustles in 2025:
Tax Calculation Example
This means on $5,000 of side income, you might owe around $1,500-1,700 in combined taxes, depending on your tax bracket. Always set aside 25-35% of side income for taxes.
Common Tax Deductions for Side Hustlers
The best way to reduce your tax bill is through legitimate business deductions. You can deduct ordinary and necessary expenses for your side hustle.
🚗 Vehicle & Mileage
2025 Rate: 70 cents per mile (estimated)
Track all miles driven for gig work (deliveries, rideshare, client meetings). Use an app like Stride or Everlance.
Example: 5,000 business miles = $3,500 deduction
🏠 Home Office
Simplified Method: $5 per square foot, up to 300 sq ft ($1,500 max)
Requires a dedicated space used regularly and exclusively for business.
📱 Phone & Internet
Deduct the business-use percentage of your phone and internet bills.
Example: 50% business use × $100/month = $600 annual deduction
💻 Equipment & Supplies
Computers, software, office supplies, equipment needed for your side hustle.
Section 179: Deduct full cost in the year of purchase (up to limits).
📚 Education & Training
Courses, books, and training that improve your skills for your side hustle.
🏦 Fees & Subscriptions
Platform fees, software subscriptions, professional memberships, bank fees for business accounts.
📋 Professional Services
Accountant fees, tax preparation, legal services, business insurance.
Quarterly Estimated Taxes
If you expect to owe $1,000 or more in taxes from self-employment, you may need to pay quarterly estimated taxes to avoid penalties.
| Quarter | Income Period | Due Date |
|---|---|---|
| Q1 | Jan 1 - Mar 31 | April 15 |
| Q2 | Apr 1 - May 31 | June 15 |
| Q3 | Jun 1 - Aug 31 | September 15 |
| Q4 | Sep 1 - Dec 31 | January 15 (next year) |
How to calculate: Estimate your total annual self-employment tax and divide by 4. Pay using IRS Direct Pay or EFTPS.
Tax Forms You Need to Know
Forms You'll Receive
| Form | What It's For | When You Get It |
|---|---|---|
| 1099-NEC | Non-employee compensation (freelance work) | By January 31 |
| 1099-K | Payment card/third party network transactions (over $600) | By January 31 |
| 1099-MISC | Miscellaneous income (royalties, prizes, etc.) | By January 31 |
| 1099-INT | Interest income (bank accounts) | By January 31 |
| 1099-DIV | Dividend income | By January 31 |
Forms You'll File
| Form | What It's For |
|---|---|
| Schedule C | Report business income and expenses |
| Schedule SE | Calculate self-employment tax |
| Form 1040-ES | Quarterly estimated tax payments |
Record Keeping Best Practices
📂 What to Track & Keep
- Income records: Screenshots of earnings, payment confirmations, 1099 forms
- Expense receipts: Keep digital copies of all business purchases
- Mileage log: Date, destination, purpose, miles for each business trip
- Bank statements: Separate business account if possible
- Platform earnings reports: Download annual summaries from each platform
Retention: Keep records for at least 3 years (7 years to be safe).
Recommended Apps for Tracking
- Stride: Free mileage and expense tracking for gig workers
- Everlance: Automatic mileage tracking
- QuickBooks Self-Employed: Full income/expense tracking
- Wave: Free accounting software
Platform-Specific Tax Info
Bandwidth Sharing Apps (Honeygain, Pawns, etc.)
Earnings are taxable income. Most don't issue 1099s for small amounts, but you should still report the income. Track your earnings from each app.
Survey/GPT Sites (Swagbucks, Freecash, etc.)
Taxable as miscellaneous income. If you earn over $600 from a single platform, expect a 1099. PayPal may also issue 1099-K for payments received.
Gig Work (Uber, DoorDash, Instacart, etc.)
Self-employment income. You'll receive 1099-K and/or 1099-NEC. Track mileage carefully - it's usually your biggest deduction.
Freelancing (Fiverr, Upwork, etc.)
Self-employment income reported on Schedule C. Platforms may issue 1099s; you can also deduct platform fees.
Cashback Apps (Rakuten, Ibotta, etc.)
Generally NOT taxable as they're considered rebates/discounts on purchases. However, referral bonuses over $600 may be taxable and could result in a 1099.
Common Tax Mistakes to Avoid
❌ Mistake #1: Not Reporting Income Without a 1099
You must report ALL income, regardless of whether you receive a 1099. The IRS can match bank deposits to your return.
❌ Mistake #2: Not Setting Aside Money for Taxes
Side hustle income has no withholding. Set aside 25-35% of every payment for taxes.
❌ Mistake #3: Missing Quarterly Payments
If you owe $1,000+ at tax time, you may face underpayment penalties. Pay quarterly to avoid this.
❌ Mistake #4: Missing Deductions
Many side hustlers overpay because they don't track or claim legitimate deductions. Track everything!
❌ Mistake #5: Not Keeping Records
If audited, you need documentation. No receipt = no deduction in an audit.
When to Hire a Tax Professional
Consider hiring a CPA or tax professional if:
- Your side hustle income exceeds $10,000/year
- You have multiple income streams
- You're unsure about deductions
- You want to set up an LLC or S-Corp
- You receive a letter from the IRS
- Your tax situation is complex (investments, property, etc.)
Cost: Expect $200-500 for a professional to file Schedule C with your regular return. This is also tax-deductible!
Frequently Asked Questions
Do I need to pay taxes on small amounts like $50?
Technically yes, but the IRS rarely pursues very small amounts. However, if your total self-employment income exceeds $400, you must file.
What if I didn't receive a 1099?
You're still required to report the income. Platforms are only required to send 1099s for amounts over certain thresholds.
Can I deduct my home internet if I work from home?
Yes, you can deduct the percentage used for business. If 30% of your internet use is for your side hustle, deduct 30% of the cost.
Do gift cards count as income?
Yes, if you earned them (surveys, rewards, etc.). The face value of the gift card is taxable income.
What about cryptocurrency earnings?
Crypto is taxable. Converting to cash, trading for other crypto, or using it to buy things are all taxable events. Keep detailed records.
💡 Key Takeaways
- Almost all side hustle income is taxable
- Set aside 25-35% for taxes
- Track expenses for deductions
- Pay quarterly if you owe $1,000+
- Keep records for 3-7 years
- Consult a professional for complex situations
📚 Keep Growing Your Side Income
Now that you know how to handle taxes, explore more ways to earn.
Explore All Platforms →