How To Report Side Income On Taxes

Whether it’s selling resin keychains on Etsy, tutoring kids for extra cash, or getting those Friday night Venmo tips from performing on stage—you might be wondering: does all this side income really need to go on your tax return? Short answer: yes. Longer answer? Understanding the rules up front saves you from panic attacks during tax season. In the current year, gig work, freelancing, under-the-table gigs, and app-based payments are firmly on the IRS’s radar. No matter how small, no matter how casual—if you’re making money, it needs to be reported. Period.

The side hustle economy is booming, and there’s no more mystery around whether the IRS pays attention. They do. And with new rules and tighter tracking from apps like PayPal, Cash App, Instagram, and more, it’s no longer just W-2 wage earners who need to keep records. So let’s break it down—the what, the why, and the forms you’re most likely to deal with. Because staying legal doesn’t have to be a second job.

Understanding Why Side Income Matters On Your the current year Taxes

Side income isn’t just what you make from a second “real” job. It’s anything that puts extra money in your pocket—from TikTok Creator Fund payouts to fixing someone’s sink on TaskRabbit. The term covers:

• Gig apps: Uber, DoorDash, Instacart
• Creative selling: Etsy, Depop, Redbubble, OnlyFans
• Freelancing: writing, graphic design, coding
• In-person work: babysitting, tutoring, house cleaning
• Flipping items: Facebook Marketplace, Mercari
• Cash gigs: yard work, pet sitting, one-off commissions

The IRS sees every dollar earned—digital or paper—as taxable income. That includes the $100 you got through Zelle for pet sitting last weekend. It doesn’t matter if it came through a bank transfer or in an envelope under someone’s doormat. What matters is that you made it in exchange for a product or service.

Now let’s squash one of the most common myths: “If it’s under $600, I don’t have to report it.” False. That number refers to how much a platform needs to report to the IRS—not what you have to report. Even if you don’t hit that threshold, you are still legally responsible for reporting that income. If you make $300 driving for Uber and they don’t issue a form? Still report it. The “no form, no tax” mindset is how people end up with audits down the road.

How Side Hustles Are Tracked In the current year

In past years, some platforms only reported your income if it topped $20,000 or had more than 200 transactions. That loophole’s closed. Starting in the current year, if you earn more than $5,000 through third-party platforms like PayPal, Stripe, or TikTok Creator Fund, you’ll get a 1099-K—and so will the IRS.

That drop from $20,000 to $5,000 is a big deal for casual sellers and freelancers.

Think you’re off the hook if you never hit those numbers? Not quite. You might still get a 1099-NEC instead. If a company or client pays you over $600 for your services, they’re required to send one. Typical gig workers, independent contractors, and freelancers will see this form show up in January.

So what if you don’t get any form? Doesn’t matter. You’re still required to report it. The IRS knows from past data and algorithmic tracking what kinds of transactions to expect. If you cashed out on a viral Etsy product, handled weekly tutoring, or used your personal Venmo to accept payments for services, you should report it—even if no one sends you an official notice.

Not reporting because “no paperwork showed up” is like driving uninsured and hoping not to crash. The IRS is matching self-reported income with what third-party vendors send in. And they don’t need much to flag your return.

The Forms You’ll Likely Use

If your side gig has you earning more than $400 after expenses, expect to get cozy with some IRS forms. Most gig workers and freelancers will fill out Schedule C, used to show your income, subtract your expenses, and figure out your net profit or loss. Whether you’re baking cakes or managing social media accounts, this is where it all gets laid out.

Then comes Schedule SE, which helps calculate the 15.3% self-employment tax—Social Security and Medicare combined. That’s separate from your regular income tax. But the silver lining is you can deduct half that SE tax when figuring your income taxes, so you’re not getting double-taxed.

There’s a lot of form overlap, so here’s how it breaks down:

• Schedule C: The go-to form for side hustle profits and expenses
• Schedule SE: Calculates self-employment tax owed
• 1099-K: You’ll receive this from payment platforms if you earn $5,000+ through them
• 1099-NEC: Sent by companies or platforms that paid you $600+ directly
• 1099-MISC: Usually for things like rental income, legal fees, or prizes—not standard gig work

Confused between 1099-NEC vs. 1099-MISC? You’re not alone. Use this rule of thumb: If someone hired you to do something—teach, write, design, mow lawns—you’re more likely to get a 1099-NEC. If it wasn’t a “job” but still taxable (say, a referral bonus or a sweepstake you won), that’s 1099-MISC territory.

And one last note—don’t rely on only the forms you’re given. Keep your own records. Sometimes clients mess up, forms get delayed, or you get paid in five different ways without crossing any single 1099 threshold. Your record is the foundation. Everything else is just backup.

Smart (and Legal) Write-Offs for Side Hustlers

If you’ve got a side hustle—anything from photography to pet sitting to flipping sneakers online—there’s one truth no one loves: every dollar you make is taxable. But here’s the good news: you can subtract way more than you think.

Side gig expenses aren’t just annoying overhead—they could be your tax season cheat code if you track them right. The key is proving they’re necessary to run your hustle. Here’s what most folks forget to claim:

• Phone bill (the portion used for client calls or app management)
• Internet usage (for working from home, uploading work, or chatting with clients)
• Subscription costs for gig tools (like scheduling software, platform fees, Adobe apps)
• Mileage or gas when driving for gigs (track it—don’t guess)
• Workspace supplies or even a slice of your rent (hello, home office)

Now, about that new laptop or camera you just bought—you can’t always deduct it all at once. Enter equipment depreciation. If it costs more than a few hundred, it might need to be written off over several years.

Let’s say you dropped $1,500 on a Canon camera to start side gigs as a wedding photographer—you don’t get to mark off $1,500 instantly unless you qualify for something called Section 179 (use this when it makes sense). Otherwise, you’ll take chunks off your taxes across several years.

The home office deduction is a favorite, but a tricky one. To qualify, your space must be exclusively and regularly used for your gig work. That means your kitchen table doesn’t count unless that table has officially become your full-time studio. If you qualify, you can mark off a portion of your rent or mortgage, utilities, and renter’s insurance. Worth it? Usually.

Side hustlers fall into the trap of “I’ll remember later”—and then April hits and you’re scrambling. That’s a fast lane to overpaying. Use apps like QuickBooks Self-Employed or even a Google Drive folder to snap and store receipts.

Got paid for a tutoring session in cash and bought printer ink that same afternoon? Log it. Nothing’s too small to write off—or to back up with receipts if Uncle Sam has questions. Think of it as low-effort, high-reward CYA documentation.

Cash, Venmo, Zelle, and App-Based Payments

Getting paid in cash or apps feels chill until tax season sneaks up. A parent hands you $200 for babysitting. Your friend Venmos you for design work. Feels harmless—but it’s all income in the IRS’s eyes.

Here’s what changed: Starting in the current year, third-party payment platforms like Venmo, PayPal, and Cash App will send you a 1099-K if you earn over $5,000 through them. So if you’re taking digital tips or payments marked “goods and services,” they’re watching. Don’t count on slipping under the radar.

The trap a lot of side hustlers fall into? Mixing personal and business money in one account. That $150 from selling your snowboard sits next to Aunt Carla’s birthday money and your friend paying you back for dinner. Now your Venmo looks like a buffet of randomness, and it’s a pain to explain what was business income vs. not.

Simplify your life now: open a separate checking account (or at least a second Venmo/Payout profile) for your gig work only. It keeps your records clean, your stress low, and your accountant happy. Plus, if you ever get audited, you won’t have to untangle personal from work money under a microscope.

If someone pays you in cash for gigs, you still have to report that income. Tossing cash in a drawer and forgetting it won’t save you anything—it might even cost you if you get audited. Keep a notebook or app log to jot down when, who, and how much.

Not all app payments are taxable. If your friend pays you back for pizza or your roommate splits rent via Zelle, that’s not income. But if someone sends you money for graphic design, that is. Keep clear records and label everything with a purpose as soon as it hits your phone.

Staying In the Clear Without Driving Yourself Crazy

No one’s keeping books like a Fortune 500 company from their couch between shifts. That’s fine. But side hustlers get into money trouble when they run everything off vibes and screenshots.

There’s a middle ground: make it easy, keep it consistent. These simple practices can help:

• Use a mileage tracking app from day one (Stride and MileIQ are good)
• Snap every purchase receipt and upload to your cloud folder ASAP
• Use separate folders for invoices, receipts, 1099s, and notes
• Label all bank transfers with keywords like “freelance” or “reimbursement”

People usually wait until tax panic hits to hire a CPA—but sometimes starting with one saves you more than it costs. If you’re making more than a few thousand a year, have multiple income sources, or got letters from the IRS that make your stomach drop, it’s time to bring in help. Expect to pay $300–600 a year for a solid CPA, but they can help you uncover write-offs you didn’t know existed—and keep you squeaky clean.

One more thing no one tells new freelancers: quarterly taxes are not optional if you owe more than $1,000 at year’s end. You don’t want to be that person who forgot this rule and ends up with penalty fees attached to their tax bill.

If you’re side-hustling next to a W-2 job, talk to your main employer about adjusting your withholdings—or start sending in quarterly estimated payments using IRS Form 1040-ES. The IRS won’t send a reminder; you have to be proactive.

And no, you don’t need perfect spreadsheets. You just need a system that works for you. There’s freedom in knowing what’s coming—and not owing it all at once.