A side gig can be a great way to earn extra money or cover your bills when you're between jobs. Some people eventually turn a side job into a full-time career or business. But while being your own boss has its perks, your taxes can become more complicated when you work for yourself. To bring some clarity to the situation, we cover the basic differences and how you can avoid overpaying taxes as a gig worker.
Who Are Gig Workers?
A gig worker is anyone who makes money from temporary, part-time or side work. The gigs could range from freelance writing to selling handmade goods at a farmers market. But people generally use the term to refer to workers who take on small gigs from an app or website, such as rideshare drivers, delivery people and pet sitters.
The Federal Reserve reports that one in five adults did some type of gig work in 2024. Generally, people take gigs as a part-time or side job, and gig workers tend to be younger—26% were 18 to 29 years old.
When it comes to your taxes, having gig income or working as an independent contractor makes you a small business owner. If you don't form a business entity, such as a limited liability company (LLC), the IRS will consider your business a sole proprietorship by default.
Basic Tax Differences Between Employees and Independent Contractors
You're required to pay taxes on all your income, regardless of whether you're paid by an employer, a gig app or cash. Gig workers may have more opportunities to deduct expenses and lower their taxable income, but there are also additional taxes and administrative work.
Here's a closer look at some things you may want or need to do when you're a gig worker.
Track and report your income
Depending on how you get your gigs and collect payments, you may receive one or several different tax forms:
- Form 1099-K: Used for reporting payments from card and third-party networks, like PayPal, Stripe, Venmo, eBay or Etsy. These types of networks should send you this form if you earned at least $20,000 from 200 or more transactions during the year.
- Form 1099-NEC: Used for reporting non-employee compensation. A gig platform should send you this form if you earned at least $600 via the platform during the year.
- Form 1099-MISC: Used for reporting payments for other activities. For example, a gig marketplace platform might send you a Form 1099-MISC if it paid you at least $600 for referring new workers to the platform during the year.
The organization also must send copies of this information to the IRS. The reporting threshold for Forms 1099-NEC and 1099-MISC will increase to $2,000 in 2026, with additional increases tied to inflation going forward.
You may not receive these forms if you didn't earn enough on a platform or from a company. However, you'll still need to track your income on your own and report it on your tax return. If you underreport your income and are audited, you may need to pay the taxes you owed plus penalties and interest.
Pay estimated taxes
When you work for someone else, the company withholds money from each paycheck and sends it to local, state and federal tax agencies as needed. When you earn money on your own, you may need to figure out how much you'll owe in taxes and make estimated tax payments to avoid an underpayment penalty.
Generally, you can avoid the penalty if you:
- Owe less than $1,000 when you file your annual return.
- Pay 90% of what you owe for the current year with estimated payments and withholdings.
- Pay 100% to 110% of what you owed last year with estimated payments.
You can estimate how much you'll owe by estimating your taxable income, deductions, credits and withholdings from gig work and employment during the year. The payments are due quarterly on the 15th of April, June, September and January.
Pay self-employment taxes
The self-employment tax will be a new one if you haven't run a business before. It covers the employee and employer's Social Security and Medicare taxes, which is 15.3% for most people.
When you're an employee, you only pay half of these taxes, and your employer pays the other half. As a gig worker, you pay both halves and should include the taxes when calculating your estimated tax payments. However, you can also deduct the employer's portion of the tax, so you only need to include 7.65% instead of the full 15.3% for estimating taxes.
Deduct eligible business expenses
As a business owner, you may be able to deduct various expenses related to your gig work. Generally, you can deduct expenses that are "ordinary and necessary" for running the business.
These might include supplies, a business license, advertising or marketing, and software. If you're using your vehicle, you might also be able to deduct the business miles you drive.
IRS Publication 334 has more detailed information about determining which expenses you can deduct. Read the rules and requirements closely, or ask a small business tax preparer for advice. Also, keep receipts and records for each expense to back up your claim.
There's also a new deduction for tips, but it's limited to workers in occupations that “customarily and regularly receive tips" and to certain types of tips. The IRS issued some guidance on which occupations qualify, so check if your gig is on the list.
Claim qualifying business-related tax deductions
You also might be eligible for other tax deductions as a business owner. For example, you may be able to claim the qualified business income deduction and deduct up to 20% of your business income.
Some gig workers can also claim the home office deduction. But review the requirements to make sure you qualify, then decide whether to use the simplified method or your actual expenses.
READ MORE: Gigs for People in Retirement
Additional Tax Considerations
Being a business owner can impact your taxes in other ways. One potentially significant benefit: You may be able to deduct health insurance premiums for yourself, your spouse and your dependents, up to your earned income for the year. However, you can't claim the deduction for months when you were eligible to participate in an employer-sponsored plan, even if you chose not to participate.
You also may become eligible for new types of tax-advantaged retirement accounts, such as a SEP IRA or solo 401(k). These accounts can have higher contribution limits than employer-sponsored plans, which may be helpful if you want (and are able) to set aside a lot of money for retirement.
READ MORE: 8 Tax Deductions and Write-Offs You Might Not Know About
Final Word for Managing Taxes as a Gig Worker
Having a side gig can make your taxes more complicated, but it also opens up new options for claiming business expenses and deductions. Try to stay informed about changes to the tax code that could impact you, and adjust your estimated tax payments accordingly.
Depending on the type of gig work you do and whether you work through an app or on your own, you may need to keep extensive records to ensure you report everything correctly. If you have a complicated situation, accounting software that syncs with apps and payment accounts can help you keep your books in order throughout the year.
Additionally, you might want or need to pay for tax software that has options for contractors and business owners. If you're uncomfortable doing your taxes with guided software, hiring a tax professional with experience helping gig workers and small business owners might make sense.
READ MORE: Joining the Gig Economy? Take These 8 Financial Steps Now