Side income in the United States is taxable from the first dollar, whether it comes from freelance work, reselling, rideshare driving or a small online shop. The rules below cover the basics most side hustlers need to know. Tax rules change and individual situations vary, so check current IRS guidance or talk to a tax professional before you file.

All side income counts, with or without a tax form

Clients and payment platforms send forms such as the 1099-NEC or the 1099-K when your payments cross certain reporting thresholds. Those thresholds only decide whether a form is sent, and they do not decide whether the income is taxable. You are expected to report all of your self-employment income, including payments that never generated a form.

Self-employment tax is on top of income tax

When you work for an employer, your employer pays half of your Social Security and Medicare taxes and withholds the other half from your paycheck. When you work for yourself, you pay both halves through self-employment tax, which is 15.3 percent of your net self-employment earnings (12.4 percent for Social Security and 2.9 percent for Medicare). The tax is calculated on 92.35 percent of your net profit, and you generally owe it once your net self-employment earnings reach $400 for the year.

You can deduct half of your self-employment tax when calculating your adjusted gross income, which reduces your income tax a little. Your profit is also subject to regular federal income tax, and in most states it is subject to state income tax as well.

You may need to pay quarterly estimated taxes

Because nobody withholds tax from your side income, the IRS expects you to pay during the year through estimated tax payments if you will owe $1,000 or more when you file. The four payments are usually due around April 15, June 15, September 15 and January 15 of the following year, with the dates shifting when they fall on a weekend or holiday. You can pay through IRS Direct Pay or your IRS online account.

If you also have a regular job, there is a simpler option. You can raise the federal withholding on your paycheck by submitting a new Form W-4 to your employer, so that the extra tax for your side income is taken out of every paycheck instead of being paid quarterly.

To avoid an underpayment penalty, most people aim to pay at least 90 percent of this year’s tax or 100 percent of last year’s total tax, rising to 110 percent of last year’s tax if your adjusted gross income was above $150,000.

Deduct your business expenses

You pay tax on profit rather than on everything you take in, so every legitimate business expense lowers your bill. Common deductions for side hustlers include:

• Equipment and software that you use for the business, such as a laptop, a camera or design software.
• Platform and payment fees charged by marketplaces such as Etsy, eBay or Upwork and by payment processors.
• Business mileage, calculated with the IRS standard mileage rate, which the IRS updates every year, or with your actual vehicle costs.
• A home office, if you use part of your home regularly and exclusively for the business. The simplified method allows $5 per square foot for up to 300 square feet.
• Phone and internet, for the share of use that is for business.
• Supplies, advertising and education that relate directly to the business you run now.

Where it goes on your tax return

Most sole proprietors report side-business income and expenses on Schedule C, calculate self-employment tax on Schedule SE and carry both onto their Form 1040. If your expenses are low and your situation is simple, tax software can walk you through these forms, but a tax professional is worth considering in your first year or once your side income grows.

Keep records all year

Keep a simple spreadsheet or use bookkeeping software to log every payment and expense as it happens, and save receipts and invoices in one folder. Running all side-business money through a separate bank account makes this much easier, because your statements become most of your records. Good records save time at tax season and give you evidence if the IRS ever asks questions.

Set money aside as you earn it

The simplest habit is to move a fixed share of every payment into a separate savings account the day it arrives. Many people start with 25 to 30 percent to cover federal income tax, self-employment tax and state tax, then adjust that share once they have filed a full year and know their real tax rate.