NEWS & RESOURCES

Side hustles have become increasingly common in recent years. Whether it’s freelance work, consulting, online sales, or driving for a delivery service, many people are earning extra income outside of their primary job.

While the additional income can be a great way to build savings or pay down debt, it often comes with tax responsibilities that many people don’t anticipate. Unlike traditional employment, side hustle income typically arrives without taxes being withheld, which can lead to surprises when tax season arrives.

Understanding a few key tax considerations can help side hustle earners avoid unexpected tax bills and stay on the IRS’s good side.

 No Taxes Are Withheld Automatically

When you receive a paycheck from an employer, income taxes, Social Security, and Medicare taxes are automatically withheld.

With most side hustles, however, you’re treated as an independent contractor. That means the full payment comes to you first, and it becomes your responsibility to set aside money for taxes.

Many people don’t realize this until they file their tax return and discover they owe significantly more than expected.

Self-Employment Taxes Add Up

In addition to regular income taxes, independent contractors are also responsible for self-employment tax, which covers Social Security and Medicare contributions.

Employees typically split these taxes with their employer. Self-employed individuals, however, must cover the full amount themselves. This can add roughly 15.3% to the tax liability on side hustle earnings.

Because of this, even a modest amount of freelance or contract income can have a noticeable impact on your overall tax bill.

Estimated Tax Payments May Be Required

If side hustle income becomes substantial, the IRS may expect you to make quarterly estimated tax payments throughout the year. These payments help ensure taxes are paid as income is earned, rather than waiting until the annual tax return is filed.

Failing to make required estimated payments can sometimes result in additional penalties, even if the full balance is paid when filing the return.

Good Recordkeeping Matters

One advantage of self-employment income is that certain business-related expenses may be deductible. This can include costs such as:

• Supplies or equipment used for the work
• Business software or subscriptions
• Mileage or travel related to the activity
• Home office expenses in certain situations

However, these deductions require proper documentation. Keeping organized records throughout the year can make tax filing much smoother and help ensure eligible expenses are not overlooked.

 Don’t Rely Only on Form 1099

Many independent contractors receive a Form 1099-NEC reporting their income. However, not all side hustle income is reported this way. Income earned through online platforms, direct payments, or smaller jobs may still be taxable even if no tax form is issued.

The IRS expects taxpayers to report all income earned, regardless of whether a form was received.

Plan Ahead to Avoid Tax Surprises

Side hustles can be a valuable way to increase income, build skills, or explore entrepreneurial opportunities. But they also introduce additional tax considerations that many people aren’t prepared for.

Setting aside a portion of each payment for taxes, keeping good records, and consulting with a tax professional when income grows can help ensure your side hustle remains financially rewarding rather than stressful at tax time.