In a word, yes. Any time you earn income for doing a job — whether for a permanent employer or as a freelance gigging side hustler extraordinaire — you need to report that money to the IRS and pay your fair share of taxes on it. This is true for almost any payment you receive, including gift cards from iPoll or Swagbucks.
Getting in to the world of freelancing can be confusing when it comes to filing your taxes, and you may be tempted to believe it when someone in a chat room tells you that there are ways to get around paying taxes on your side gig dinero. Don’t believe it! Tax fraud is a big deal, and it’s not worth it if you get audited.
Here’s what you need to know about paying taxes on all your side hustle money so you can stay sane — and legal — as you build your savings the old-fashioned way.
What to Expect When You’re Not an Employee
If you’ve ever had a job with a regular employer, you already know what a typical paycheck looks like. There’s your gross pay — that is, the money you earned — and there’s your net pay, which is what you’re left with after all the deductions your employer takes out for things like Social Security, Medicare, plus federal, state and local taxes. It can be a bummer, but at the end of the year you also get a W-2, which spells out exactly how much earned and how much you’ve already paid toward your taxes through withholding.
Doing taxes with a W-2 form is a piece of cake, and it’s so uncomplicated that you might even be able to use a 1040EZ form.
When you start side gigging, however, your tax picture get complex pretty quick. If you work as an independent contractor for a big company, you’ll be issued a 1099 form outlining what they paid you over the course of the year. This form is pretty simple, since they don’t take out any taxes for you. Businesses aren’t required to send you a 1099 if you made less than $600 for the year, but don’t be fooled: You still have to claim that income even without a form, usually as “gross receipts” for your side business.
And all the little odd jobs you do around town for $25 bucks a pop? Gross receipts.
You need to keep track.
It’s a good idea to keep a running list of your income from every source throughout the year, especially if you don’t get 1099 forms from a bunch of them. On the bright side, you should also keep track of any business expenses you make, like special tools for the job or the laptop you use for online work, since you’ll be able to deduct these business expenses to help balance things out.
How to Pay Your Taxes
Once you add up all those income sources and enter the numbers into your tax preparation software (or take them to a tax pro, if you’re fancy), you’ll find out exactly how much you owe. People who have taxes withheld by employers often get a refund because they actually overpaid their taxes over the course of the year.