More Americans are relying on side gig earnings. And if you’ve never had a side hustle or second job before, understanding how this income factors into your taxes can be confusing.Whether you’re a life-long side-gigger or a first timer, here’s everything you need to know about how a second job or side gig affects your taxes.
Did you do additional work as a freelancer or independent contractor?
If you work as a freelancer, independent contractor, a side gig or side hustle, you are considered self-employed and must include the income on a Schedule C, Sole Proprietor, on your tax return. Whether you get a Form 1099-NEC, Form 1099-K, or just cash or checks, you should always track the income yourself, to be sure you claim all of your income.
Do I have to pay taxes on a side hustle?
Absolutely. You must report any income you earn, whether from a primary job or a side hustle, to the IRS. This holds true whether you're a freelance writer, an Uber driver, or sell handcrafted items or anything else online. Remember, every dollar counts when it comes to the IRS, and it's always better to be safe than sorry with your tax obligations. Otherwise, you could get penalties.
Side hustle deductions
We have good news for side hustlers—you can deduct many expenses related to your gig from your taxes, thereby reducing your taxable income. That means you’ll pay less in taxes for the year. You can deduct tools and materials, home office expenses, vehicle mileage, training costs, and even a portion of your internet bill if you work online. It’s crucial that you keep careful records of these expenses, as they can significantly lower your tax obligation. Work with a Tax Pro to learn what qualifies as a deductible expense for your specific side hustle.
What IRS tax forms do I need to file for a side hustle?
Depending on your side hustle, you'll likely need to fill out a Schedule C (Profit or Loss from Business) to report earnings or losses from your side gig. If you've made more than $400, you'll also need to file a Schedule SE (Self-Employment Tax) to cover your Medicare and Social Security obligations. Include the income from forms 1099-NEC or 1099-K with all other income for the side hustle on your Schedule C.
What if I have multiple W-2 forms?
Make sure you don’t pay too much in Social Security taxes. There is a maximum amount of Social Security taxes you have to pay each year. If you work for one employer, they will stop withholding your Social Security taxes once you reach that point. The maximum Social Security earnings this year is $160,200, and your maximum Social Security taxes are $9,932.40. If you worked for one employer and paid too much, you must contact your employer for a refund of the overpayment. If you work for more than one employer, you can claim any excess Social Security taxes paid when you file your tax return.
If you are a freelancer, self-employed, or in the gig economy, you should be making estimated tax payments every quarter.
Side hustle quarterly estimated payments
The IRS considers your side gig earnings as self-employed income. That means you’re responsible for paying quarterly taxes, since taxes aren’t taken out of your check. Making quarterly estimated payments allows you to cover your income and self-employment taxes throughout the year, rather than paying a lump sum during tax season. They're crucial because they can help you avoid underpayment penalties and manage your cash flow more effectively. As a freelancer, your income does not have taxes withheld like a traditional employee, so these payments ensure you're meeting your tax obligations regularly.
Here are the key dates for quarterly estimated payments
- April 15 - For earnings from January 1 to March 31.
- June 15 - For earnings from April 1 to May 31.
- September 15 - For earnings from June 1 to August 31.
- January 15 of the following year - For earnings from September 1 to December 31.
Keep in mind that these dates can shift slightly if they fall on weekends or holidays. It's important to stay updated each year.
Will working a second job affect my taxes?
Anytime you increase your income, you have the potential to increase your taxes. Make sure you are withholding the right amount to cover your taxes, particularly if this is your first time having a second job or side gig. If you are self-employed, make sure you are keeping receipts of all your expenses as well as a journal of all the miles you are driving for your job.
How much can you make without filing taxes?
According to the IRS, for the 2023 tax year, if you're single and under 65, you need to file taxes if your gross income was at least $13,850. However, for self-employed individuals, this threshold is much lower—just $400. That means even if your side hustle earnings are modest, they still need to be reported. It's always best to consult with a Tax Pro if you're unsure about your filing requirements.
If I earned less than $400 from my second job, do I have to claim it?
You must claim all the income you earn from any job. If you are/were an employee for someone during the year, they must issue you a W-2 reporting your wages, Social Security, and Medicare taxes withheld, and any federal and state income taxes withheld. If you are working as an independent contractor, have a side gig or side hustle, are a freelancer, or have your own business, keep track of your income and expenses and report them on your tax return.
If I have self-employment income (full or part time or little or a lot), will my taxes be more complicated?
Well, the short answer is YES. If you have self-employed or side income during the year, your taxes overall will be more complicated both federal and likely state too. However, there is good news. The tax rules for small business and self-employed including even part-time gig income are some of the best and most beneficial of all tax rules. There are benefits, tax deductions, special rules, and a lot more that can reduce your taxable income and even sometimes create an overall tax loss and offset your regular income. Know the rules and pay less taxes.
Whether you’re new to having a side gig or a well-seasoned side-hustler, understanding how side-gig income can impact your taxes can be confusing. We are here to help you with any tax questions you may have this year and the years to come. Find a Tax Pro near you.
