New IRS Rules on Reporting Side Hustle Income

Introduction

The IRS has introduced stricter reporting requirements for side hustle income in 2025, affecting freelancers, gig workers, and independent contractors. With the expansion of third-party payment reporting and increased IRS scrutiny, taxpayers earning income from side gigs, online sales, ridesharing, or freelancing must ensure they comply with the latest regulations.

This article explains new IRS rules for reporting side hustle income, references Internal Revenue Code (IRC) sections, discusses relevant IRS forms, and provides practical examples to help taxpayers navigate their tax obligations.

IRS Reporting Requirements for Side Hustle Income in 2025

The IRS requires taxpayers to report all income earned, even if they do not receive a Form 1099 from clients or third-party payment platforms.

Key IRS Rules for 2025

• Lower 1099-K Threshold: Under IRC § 6050W, third-party payment processors like PayPal, Venmo, and Cash App must issue a Form 1099-K if transactions exceed $600, down from the previous threshold of $20,000 and 200 transactions.
• Self-Employment Tax: Income from a side hustle is subject to 15.3% self-employment tax under IRC § 1401.
• Quarterly Estimated Taxes: Self-employed individuals earning $1,000 or more in annual net income must make estimated tax payments using IRS Form 1040-ES under IRC § 6654.
• Income Must Be Reported, Even Without a 1099: All side hustle earnings must be reported on Schedule C (Profit or Loss from Business), whether or not a 1099 is received.

How the New 1099-K Rule Affects Freelancers and Gig Workers

The IRS is cracking down on unreported gig income by requiring more platforms to issue 1099-K forms. This means freelancers, online sellers, and gig workers receiving payments through:

• PayPal, Venmo, Zelle, Cash App
• Uber, Lyft, DoorDash, Instacart
• Etsy, eBay, Amazon Marketplace

Example: A Freelancer Affected by the New Rule

Mark, a graphic designer, earns $8,000 in side income from freelance work on Upwork.

• In 2024, he wouldn’t have received a 1099-K, as his transactions were under the $20,000 threshold.
• In 2025, Upwork issues him a 1099-K because he earned over $600.
• Mark must report this income on Schedule C and pay self-employment tax.

Deductible Expenses for Side Hustlers

To reduce taxable income, side hustle earners can deduct legitimate business expenses under IRC § 162. Common deductions include:

• Home Office Deduction (IRC § 280A) – If a portion of your home is used exclusively for business.
• Mileage Deduction (IRC § 274) – Miles driven for business purposes, using IRS standard mileage rates.
• Software and Equipment – Costs for laptops, software, and tools used for work.
• Advertising and Marketing – Costs for promoting your side hustle.

Example: How Deductions Reduce Taxable Income

Sarah earns $10,000 from photography but incurs $3,000 in expenses (camera, software, website). She reports:

• $10,000 gross income on Schedule C
• $3,000 in deductions, reducing taxable income to $7,000

IRS Self-Employment Tax and How to Pay It

Under IRC § 1401, side hustle income is subject to self-employment tax (15.3%), covering Social Security (12.4%) and Medicare (2.9%).

How to Pay Self-Employment Tax

1. Calculate Net Income – Report side hustle earnings on Schedule C.
2. Use Schedule SE (Self-Employment Tax) – Compute tax liability.
3. Make Quarterly Payments – Use IRS Form 1040-ES to pay estimated taxes.

Example: Self-Employment Tax Calculation

David earns $20,000 from consulting. After deducting $5,000 in business expenses, his net earnings are $15,000. His self-employment tax:

• $15,000 x 15.3% = $2,295 owed to the IRS.

Step-by-Step Guide to Reporting Side Hustle Income

1. Track Your Income – Maintain records of payments, invoices, and deposits.
2. Check for 1099 Forms – Look for 1099-K, 1099-NEC, or 1099-MISC from clients or payment platforms.
3. Deduct Eligible Business Expenses – Keep receipts and records of deductible costs.
4. Complete Schedule C – Report income and deductions on IRS Form 1040, Schedule C.
5. Calculate Self-Employment Tax – Use Schedule SE and pay estimated taxes on Form 1040-ES if necessary.

Conclusion

The new IRS reporting rules for side hustle income in 2025 mean gig workers, freelancers, and small business owners must carefully track earnings and deductions. The lower 1099-K threshold and self-employment tax requirements increase IRS scrutiny on unreported income.

To ensure compliance and minimize tax liability, schedule a meeting with Anshul Goyal, CPA EA FCA for expert tax guidance. Book an appointment here:

About Our CPA

Anshul Goyal, CPA EA FCA is a licensed Certified Public Accountant (CPA) in the United States, an Enrolled Agent (EA) admitted to practice before the IRS, and a cross-border tax expert. He specializes in IRS compliance, tax litigation, and assisting American businesses and Indian expatriates in managing U.S. tax obligations.

Frequently Asked Questions (FAQs)

1. What is the new IRS 1099-K threshold for 2025?

The IRS now requires third-party payment platforms to issue 1099-K forms for transactions exceeding $600, down from the previous $20,000 threshold.

2. Do I need to report side hustle income if I don’t get a 1099?

Yes. Under IRC § 61, all income must be reported, even if you don’t receive a 1099-K or 1099-NEC.

3. How can I reduce my side hustle taxes?

You can deduct business expenses such as home office costs, internet, supplies, and travel under IRC § 162.

4. Do I have to pay self-employment tax?

Yes. If your net earnings exceed $400, you must pay 15.3% self-employment tax using Schedule SE.

5. How do I pay taxes on side hustle income?

Use IRS Form 1040-ES to make quarterly estimated tax payments and report earnings on Schedule C when filing your return.