Whether you drive for a rideshare company, run your own tutoring business, or sell your artwork online, you’ll need to pay taxes once you’ve earned a certain amount of income.
Since paying taxes on your side hustle is going to be a bit different and require some planning, we’ve put together a comprehensive guide of what to expect. This will help you decide if you need to hire someone to help or if you can handle side hustle taxes yourself.
- Do I have to pay taxes on a side hustle?
- Do I need an EIN?
- Should I track the money I make from my side hustle?
- What are quarterly self-employment taxes?
- What can I deduct as a side hustler?
- What forms do I need to file taxes for a side hustle?
- Should I DIY or hire help?
- FAQs about side hustle taxes
- Bottom line
Do I have to pay taxes on a side hustle?
If your net earnings from your side hustle for the year exceed $400, you are required to file a tax return for that income, even if you have a full-time job as well. Independent contractors are treated as self-employed individuals for tax purposes.
The type of form you’ll submit depends on the type of business entity you’ve established. Most likely, if you’ve picked up a side gig, you are a sole proprietor. But you might also set up your business as a partnership, corporation, S corporation, or limited liability company (LLC).
Because an employer isn’t withholding taxes from your paycheck on a regular basis, you’ll need to pay estimated taxes quarterly. Generally, taxes for your side hustle will eat up a greater percentage of your earnings than the taxes taken out of your paycheck as an employee. That’s because employers typically pay half of your contributions to Social Security and Medicare.
Self-employed Social Security and Medicare taxes
If you’re self-employed, you’ll pay the full 12.4% Social Security tax on income up to $147,000 and a 2.9% Medicare tax on all your earnings in 2022. The Social Security tax applies on income up to $160,200 in 2023.
While a W-2 form is used to report wages for employees, a 1099 form is generally used to report self-employment income. If you’ve made more than $600 for your contract work with a business, that business should send you a 1099 form at the beginning of the following year. Businesses are supposed to mail these by January 31st. You can use them to verify your total income when it comes time to file your annual return.
Do I need an EIN?
Reasons you might need an EIN include having employees or running your business as a corporation or partnership. You would also need an EIN if you run a nonprofit organization. To see a complete list of scenarios that would require you to obtain an EIN, consult this IRS guide.
Why do I need an EIN?
Besides tax purposes, you may also want to get an EIN if you’re trying to achieve certain financial goals, such as opening a business bank account, applying for a business credit card, or taking out a business loan. Most banks require an EIN to provide these services. You’ll also need an EIN if you need a business license or permit.
If you work with a lot of different clients, you may also prefer an EIN for privacy purposes so that you won’t have to use your Social Security number on tax forms.
Should I track the money I make from my side hustle?
If you want to avoid headaches when it comes time to file your side hustle tax return, you should keep track of both your income and business-related expenses for your side hustle.
You’ll need to know what you earned from your side hustle to file your taxes. In addition, some business expenses are tax-deductible, so you could actually save money by keeping meticulous records of what you spent.
And since you probably need to pay estimated taxes quarterly, it’s not feasible to separate out your business costs and earnings from your personal income and expenses at the end of the year. Being proactive can save you a lot of time and money.
How to track business income and expenses
To track your income and expenses, you can use something as simple as an Excel spreadsheet or as robust as software such as Quickbooks.
You can also use the same budgeting tools you use for personal expenses to separate out your business income and costs. Apps such as Mint allow you to label your earnings and expenses as business-related, so you can easily look back on how much you’ve earned and spent for your side hustle as you prepare your quarterly estimates.
Another way to easily and automatically track your business expenses is to apply for a business credit card. If you put all your business expenses on one card, you’ll be able to log into your account and see your costs in one place.
Several business credit cards come with some attractive perks and rewards as well. For example, the Ink Business Unlimited® Credit Card allows you to earn 1.5% cash back on all spending. Plus, new cardmembers can earn $900 bonus cash back after spending $6,000 in the first 3 months (limited time offer).
What are quarterly self-employment taxes?
Quarterly self-employment taxes are taxes you pay each quarter of the year based on estimates of your potential tax liability. If you’re self-employed, you’re responsible for making payments of your quarterly taxes throughout the year.
Do I have to pay quarterly taxes for my side hustle?
If you were an employee, your employer would withhold money from your regular paycheck to put towards tax payments, but as an independent contractor, you need to pay your self-employment taxes quarterly. The only exceptions to this rule are:
- If you won’t owe more than $1,000 in federal taxes over the course of the year, you are not required to pay estimated tax
- Your income tax withholding will add up to at least 90% of the total you will owe for the year
- Your income tax withholding will amount to at least 100% of the total tax paid on last year’s return.
Percentages will differ if you are a farmer, fisherman, or high-income taxpayer. If you didn’t have to file a tax return in the previous year, you are also not required to pay estimated tax.
How to calculate estimated taxes
To calculate your estimated taxes, you can use Form 1040 ES and follow the instructions line by line. You’ll figure out your total gross income that you expect to earn this year and subtract any deductions. You’ll then use the Tax Rate Schedules to determine how much you owe.
If you are required to pay estimated quarterly taxes and you fail to pay or don’t pay enough, you will be subject to a penalty. To ensure you don’t have to pay more than necessary, pay your estimated quarterly taxes by the following dates:
|2023 income period||Due dates|
|January 1 through March 31||Apr. 18, 2023|
|April 1 through May 31||Jun. 15, 2023|
|June 1 through August 31||Sept. 15, 2023|
|September 1 through December 31||Jan. 16, 2023|
Keep in mindYou can skip the January payment if you file Form 1040 by January 31 and pay the rest of what you owe. Otherwise, make sure your payments are postmarked by the due date listed. If the due date falls on a legal holiday or weekend day, your payment will still be on time if postmarked on the following business day.
Besides sending a check in the mail, you can also pay cash at a partner retailer, pay online with a bank account for free, or pay with a debit card or credit card, which will incur a processing fee.
What can I deduct as a side hustler?
When you claim a deduction, it reduces the total amount of taxable income you’ve earned, which means you’ll pay less in side hustle taxes. But claiming deductions can be a hassle since you’ll need receipts or invoices that show what you’ve spent. That’s why the IRS gives you the option of claiming the standard deduction, which allows you to deduct a flat amount.
The standard deductions for 2023 are as follows:
|Single taxpayers and married filing separately||$13,850|
|Married filing jointly||$27,700|
|Heads of household||$20,800|
Even if you take the standard deduction, you can still claim business expenses on a Schedule C form. You can also file a Schedule 1 form for certain tax deductions without itemizing, which you can qualify for even when you take the standard deduction.
In general, you may be able to deduct the following items:
|Self-employment tax||In figuring your gross income, you can deduct half of your self-employment tax (the portion an employer would typically pay)|
|Expenses for your home office||If you have a space in your home that is used exclusively for business purposes and you don’t do business elsewhere, you can deduct the percentage of the total cost of your living space that your office takes up. You’re allowed to do this whether you rent or own. You can also deduct the same portion of your mortgage interest, utilities, insurance, repairs, and depreciation. Alternatively, you can use the safe harbor method to deduct $5 per square foot up to 300 square feet.|
|Car expenses||While you can’t deduct your commute to and from your place of business, you can deduct the cost of using your vehicle for business purposes. For example, rideshare drivers can choose to deduct either the actual expenses incurred or the standard mileage rate, which is 65.5 cents per mile driven for business purposes in 2023.|
|Internet and phone costs||If you have a website for your business, use your phone plan for contacting customers, or use the internet for work, you can deduct those expenses.|
|Travel expenses||If you need to travel for business purposes, you can deduct the cost of transportation to your business destination via airplane, train, bus, or car. You can also deduct other travel expenses for your trip, such as taxis and lodging.|
|Meals and entertaining clients||If you take a client out to lunch, you can deduct 50% of the expense.|
|Health insurance premiums||If you are self-employed and don’t get insurance through your employer, you can deduct the cost of health insurance premiums paid for yourself, your spouse, and your dependents.|
|Business insurance||Certain types of insurance premiums paid to protect your business can be deducted, such as liability insurance and business interruption insurance.|
|Advertising||If you place Facebook ads, mail flyers, or otherwise put money into advertising for your business, you can deduct those costs.|
|Retirement contributions||If you choose to contribute a portion of your self-employment income to a Simplified Employee Pension or 401(k) plan, those contributions will be tax-deductible. For a SEP plan, you can contribute as much as 25% of your earnings or up to $66,000 in 2023. For a 401(k) plan, you can contribute that amount plus annual salary deferrals of up to $22,500 and an additional $7,500 if you’re 50 or older.|
What forms do I need to file taxes for a side hustle?
The following are the typical forms most side hustlers will need as a sole proprietor or single-member LLC. If your business is structured in another way, other forms may be required.
|If you want to...||You’ll need...|
|Make quarterly payments (usually required)||Form 1040-ES|
|File your annual return as a sole proprietor and report business income minus business expenses (required)||Schedule C|
|Report Social Security and Medicare taxes (required)||Schedule SE|
|Report certain types of payments (sometimes required)||Information return forms|
|Figure out the allowable expenses for business use of your home using the standard method||Form 8829|
|Make adjustments to your income based on certain tax deductions without itemizing||Schedule 1|
Should I DIY or hire help?
Whether you calculate and file your taxes yourself, use the best tax software, or hire a CPA or another tax professional depends on your situation.
If you just made some extra money from one side hustle and you didn’t have any major expenses, it may be easy enough to keep track of timetables and fill out the forms yourself. But if you run a business with many clients, have a number of side hustles, or want to itemize your deductions, it might not be worth the headache of doing it on your own.
In addition, someone with experience can help you decide what to deduct, which can reduce the total amount you pay. They’ll also be able to guide you through the process so that you can rest assured you’re following all the rules and avoiding penalties.
Still, hiring help can be expensive. You might end up losing out on more of your income if you have to hire an accountant. Then again, if it frees up your time so you can take on more work and earn more, it’s probably worth it.
FAQs about side hustle taxes
How much can you make from a side business before you need to pay taxes?
If you earn at least $400 from your side hustle, you’ll have to pay self-employment taxes on that money. You should receive a 1099-MISC from any company that hired you as an independent contractor and paid you $600 or more, but you should also keep track of your income in case you don’t receive this form. If you expect to owe $1,000 or more in taxes from your side business at the end of the year, you’ll also need to pay quarterly estimated tax.
Do you need to report income under $400?
Yes, you need to report self-employment income under $400 on your tax return, but you won’t be subject to self-employment tax if your income is lower than that amount. If your total income from self-employment exceeds that amount, you will be subject to the self-employment tax.
It’s important to keep track of all income you earn from side hustles throughout the year, so you aren't scrambling at tax time. That includes money from survey sites and any referral rewards you may have earned. It doesn’t include cashback rewards.
Do you need to report income from a side job?
If you work as a freelancer, whether you sell items on Etsy or drive for Uber, you need to report your net earnings to the IRS. You should keep track of all your side hustle income for accurate reporting. If you earn $600 or more from a company, they’re required to send you a 1099-MISC at the beginning of the year.
Can you write off expenses as a small business owner?
Yes. Small business owners and self-employed people can deduct a variety of costs associated with carrying on a business when it comes time to file taxes, which can result in a lower tax bill. Depending on your situation, you may be able to deduct:
- The cost of goods sold, such as materials used to make items for your Etsy shop
- Business use of your home, or a portion of your rent/mortgage and utilities, if you keep a home office
- Business use of your car or a portion of your expenses based on mileage used for business purposes
- Business insurance costs
For more details, check out our Side Hustler’s Complete Guide to Taxes.
Nearly half of working Americans have income from a side hustle, and the majority will need to pay taxes on that income. Whether you choose to hire help or do it yourself, paying your side business taxes will be a lot easier if you’re proactive about tracking your income and expenses.
Be sure to add any deadlines to your calendar for the year, so you don’t end up paying a penalty. It may also be a good idea to open a flexible savings account to put aside money for your quarterly tax payments to help you work on how to manage your money and to ensure that money will be accessible to you when the deadline rolls around. And above all, avoid making major tax mistakes at all costs.
While figuring out your taxes is far from entertaining, doing it right can save you money that you can use to grow your business or take some time off. If you end up getting a refund, use it wisely. And remember that while it can be expensive to be self-employed, it also often allows you to choose your own schedule and provides you with other unique opportunities.
So keep up the side hustle, and don’t sweat your taxes too much. A little planning and a few forms are all you’ll need to be successful.