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Guide · Your situation

I have a side hustle

Freelancing, reselling, driving, doing hair, selling crafts online: if you earn money outside a regular paycheck, nobody is withholding tax for you. That means you're responsible for tracking it, reporting it and paying as you go. This guide shows how it shows up on your return and how to avoid a surprise bill.

Written for the 2025 tax year (returns filed in 2026), with notes on what changes for 2026.
Rule #1

It counts even without a form

Side income is taxable whether or not anyone sends you a tax form. The forms are just reports to the IRS; your obligation to report the income comes first. Cash, apps, checks and online sales all count.

01 · The forms you might get

1099-NEC and 1099-K

Form 1099-NEC comes from a business that paid you as a contractor. For 2025 payments, businesses send one once they've paid you $600 or more; starting with 2026 payments, that threshold rises to $2,000.

Form 1099-K comes from payment apps and online marketplaces. You generally get one only if you received more than $20,000 across more than 200 transactions in the year. Most small side hustles won't get one, but the income still has to be reported.

Ask yourself: Do my own records of what I earned match the forms I received? Was any income left off?
02 · Schedule C

Income minus expenses equals profit

Most side businesses report on Schedule C. You list what you earned, then subtract ordinary and necessary business expenses, like supplies, inventory you sold, software, part of your phone bill, mileage for business driving or fees charged by selling platforms. You're taxed on the profit, not the total sales, which is why good records matter.

Ask yourself: Did I track my expenses all year, or rebuild them at tax time? Which costs did I probably miss?
03 · Self-employment tax

The tax that surprises people

At a job, you and your employer split Social Security and Medicare taxes. When you work for yourself, you pay both halves: 15.3% on most of your net self-employment earnings, on top of regular income tax. It applies once your net earnings from self-employment reach $400 for the year. It's figured on Schedule SE, and you get to deduct half of it as an adjustment to income.

Ask yourself: How much self-employment tax did I pay? Was I setting money aside for it?
04 · Estimated payments

Paying as you go

Because no one withholds tax from side income, the IRS expects you to pay during the year through quarterly estimated payments, usually due mid-April, mid-June, mid-September and mid-January. Skipping them can mean a penalty, even if you pay everything when you file. If you also have a regular job, another option is raising your withholding on your W-4 to cover the side income.

Ask yourself: Did I owe a lot at filing time? Did my return include an underpayment penalty?
05 · Hobby or business?

Why the difference matters

If you run it like a business, trying to make a profit, it's a business and you can deduct expenses. If it's really a hobby that sometimes brings in money, the income is still taxable but you generally can't deduct the costs. The IRS looks at things like whether you keep records, put in real time and work to make it profitable.

Ask yourself: Am I running this like a business? Do I keep separate records and a separate bank account for it?

What you could look at next year

  • Open a separate bank account for side income and expenses.
  • Track income and expenses monthly, with receipts and a mileage log, not just at tax time.
  • Set aside a portion of every payment for taxes in a savings account.
  • Put the estimated payment due dates on your calendar, or adjust your W-4 if you also have a job.
  • If your side income is growing, ask a qualified tax professional about recordkeeping, retirement accounts for the self-employed and business structure.

Sources

Last updated: November 14, 2026

This page was written from the sources below. Official sources are from the IRS or another government body; secondary sources are tax publications used to cross-check new rules. Tax law changes, so always confirm with the official source for the year you're filing.