This is general information, not tax advice. Rules depend on your situation and can change, so check with the IRS or a qualified tax professional. Figures were checked against the sources below on November 4, 2026.
Driving, freelancing, selling your services or running a small online business can be a useful way to earn extra money. It can also bring a tax bill you weren’t expecting, because usually nobody is withholding tax from those payments for you. Here’s what to know before filing time.
Side income is taxable, even without a form
The IRS is clear that gig income is taxable, whether it’s a side job or your main work, and whether you’re paid in cash, property, goods or virtual currency. You must report all of it, even if you don’t receive a Form 1099.
Why you might not get a 1099
The reporting thresholds for these forms have changed recently:
- Form 1099-NEC: for payments made in 2026, the threshold is $2,000, up from $600.
- Form 1099-K: payment apps and online marketplaces generally have to report you only when you exceed both $20,000 and 200 transactions. Card payments are different and have no minimum, and some states have lower thresholds.
These rules decide when a company has to send a form. They don’t decide whether you owe tax, so you can’t rely on them to tell you what to report.
Self-employment tax: the part people miss
As an employee, your employer pays part of your Social Security and Medicare taxes. When you work for yourself, you generally pay both parts. The IRS says the rate is 15.3%, made up of 12.4% for Social Security and 2.9% for Medicare. For 2026, the Social Security part applies to the first $184,500 of combined wages and self-employment earnings.
You generally must file if you have net earnings from self-employment of $400 or more, and this is on top of regular income tax.
A worked example
Suppose you earned $10,000 from a side business in 2026 and had $2,000 in allowable expenses. Your net profit is $8,000, and your wages are below the Social Security limit. Schedule SE generally calculates the tax on 92.35% of your net earnings:
| Step | Amount |
|---|---|
| Net profit | $8,000 |
| Multiply by 92.35% | $7,388 |
| Multiply by 15.3%: self-employment tax | About $1,130 |
You can deduct the employer-equivalent portion, in this case about half or $565, when working out your adjusted gross income. That reduces your income tax, not the self-employment tax itself. You’d also pay income tax on your profit at your usual rate, and possibly state tax.
Expenses can reduce your bill
The IRS says you can lower your tax by deducting certain expenses. Depending on your work, these may include supplies, fees charged by platforms, software, some phone and internet costs, and business use of your car or home. Expenses that are partly personal usually have to be split.
If you drive for business, you may be able to use the standard mileage rate. The IRS set the 2026 business rate at 72.5 cents per mile through June 30 and 76 cents from July 1. Other rules apply, so check that you qualify.
You may also qualify for the qualified business income deduction. Tax software or a preparer can check this for you.
Keep good records from day one
- Open a separate account for your side income, if you can.
- Save receipts and invoices, and note what each expense was for.
- Keep a mileage log with dates, destinations and business purposes.
- Download statements from every platform you use, and check them against your own records.
- Compare any 1099 against your own records. A 1099-K can show gross amounts before fees or refunds.
Quarterly payments
You generally need to make estimated payments if you expect to owe $1,000 or more when you file. The usual deadlines are:
| Income earned | Payment due |
|---|---|
| January 1 to March 31 | April 15 |
| April 1 to May 31 | June 15 |
| June 1 to August 31 | September 15 |
| September 1 to December 31 | January 15 of the next year |
If a date falls on a weekend or holiday, it moves to the next business day. You can generally avoid an underpayment penalty if you owe less than $1,000 after withholding and credits, or if you’ve paid at least 90% of this year’s tax or 100% of last year’s, whichever is smaller. Higher earners may need to pay more under the prior-year test.
If you also have a regular job, you may be able to cover the tax by increasing the withholding from your paycheck using a new Form W-4, instead of making separate payments.
How much should you set aside?
Many people move a fixed share of each payment into a separate savings account. Setting aside 25% to 30% of your profit is a common rule of thumb, not an IRS figure, and your own number could be higher or lower depending on your income and state. Once you have a few months of figures, use the worksheet in Form 1040-ES to refine it. Our list of ways to build savings can help you keep this money separate.
Filing your return
Most sole proprietors report profit or loss on Schedule C and self-employment tax on Schedule SE, along with their Form 1040. If your side income is more than a small sideline, or if you have employees, a home office or several income streams, it can be worth paying a tax professional to review it.
