Self-Employment Taxes for Beginners: Side Hustles, Gig Work & WFH
In our first installment on filing taxes for the first time, we covered the basic process for full-time employees. But, if you have a side hustle or self-employment income, your taxes just got a bit more complicated. Maybe you drove for a rideshare company on weekends, sold handmade goods on Etsy or went fully freelance. Whatever your situation, in this edition, we’re covering self-employment taxes for beginners: what changes when you earn money outside a traditional job, what forms you’ll need and how to make sure you’re not caught off guard come tax season.
At a Glance: Self-Employment Taxes for Beginners
What Changes When You Have Non-Traditional Income
When you work a traditional job, your employer handles a lot of the heavy tax lifting, including withholding federal and state income taxes from each paycheck and covering half of your Social Security and Medicare taxes (AKA FICA). You get a W-2 at the end of the year and file from there.
When you earn money outside of traditional employment, that system doesn’t apply. No one is withholding taxes on your behalf, which means two things: 1) You’re responsible for setting money aside yourself, and 2) you may owe taxes that weren’t automatically taken out.
The good news is that non-traditional income is very common, so tax software handles it well and the process, once you understand it, is more straightforward than it sounds.
First-Timer Tip: Any income you earn — whether it’s from a W-2 job, a side hustle, selling crafts online or driving for a rideshare app — is taxable income. The IRS expects you to report it all.
Side Hustle Taxes: What You Need to Know
A side hustle is any work you do for income outside of your primary job. Think tutoring, freelance writing, photography, selling handmade items or consulting. If you also have a W-2 job, you’ll file that income alongside your side hustle income on the same federal return.
What Forms to Expect
If a client or platform paid you $600 or more in a year, they’re required to send you a 1099-NEC (Non-Employee Compensation) by Jan. 31. If you earned less than $600 from a single source, you may not receive a form, but that income is still taxable and still needs to be reported.
Self-Employment Tax
Here’s the part that surprises most first-timers: When you work for yourself, you pay both the employee and employer portions of Social Security and Medicare taxes. This is called the self-employment tax, and it’s calculated on your net earnings (what you made minus your business expenses). Tax software will calculate this automatically, but it’s good to know it exists so you’re not blindsided.
Deducting Business Expenses
The upside of self-employment is that you can deduct legitimate business expenses. That is the things you spent money on specifically to do your work. Common examples include:
- Supplies or materials used for work
- Software or subscriptions directly related to your hustle
- A portion of your phone bill if you use it for work
- Mileage driven for business purposes (not commuting)
Keep receipts and records throughout the year. A simple spreadsheet works fine for most beginners.
First-Timer Tip: Don’t try to deduct personal expenses as business ones. The IRS looks for expenses that are “ordinary and necessary” for your type of work. When in doubt, leave it out or ask a professional.
Gig Economy Taxes: Deliver, Rideshare and More
Gig economy work, such as driving for Uber or Lyft, delivering for DoorDash, selling on Etsy or Poshmark, or renting on Airbnb sits in its own category because the platforms themselves are often your only “employer.” There’s no HR department, no payroll and no withholding.
The 1099-K and What It Means
Many gig platforms issue a 1099-K rather than a 1099-NEC. The 1099-K reports the gross amount processed through the platform, meaning it may reflect your total sales or earnings before platform fees are deducted. That doesn’t mean you owe taxes on the full gross amount. You can deduct those fees as business expenses, which brings your taxable income down. The 1099-K reporting threshold has changed several times in recent years, so you may or may not receive one depending on how much you earned through a platform. Regardless, the same rule applies: if you earned the money, you owe taxes on it.
Tracking Your Expenses as a Gig Worker
Gig work comes with real deductible expenses. For rideshare and delivery drivers, mileage is often the biggest one. The IRS sets a standard mileage rate each year, and you can use it to calculate your deduction based on miles driven for work. Keep in mind your rideshare or deliver app may not track all your deductible mileage accurately, so it’s important to keep your own log.
Other common gig worker deductions include:
- Platform or transaction fees
- Materials, packaging and shipping costs
- A portion of your phone plan
- Equipment and subscriptions used for the work
Selling Personal Items vs. Running a Business
There’s an important distinction here: Selling your old clothes on Poshmark is generally not the same as running a resale business. If you’re occasionally selling personal items for less than you paid for them, that typically isn’t taxable income. If you’re buying items to resell at a profit, that’s a business and the income is taxable. When in doubt, a tax professional can help you figure out which category you fall into.
First-Timer Tip: Most gig platforms have a tax summary or earnings report in your account dashboard. Downloading it before tax season makes reporting much easier.
Self-Employment Taxes: When Your Business Is Your Job
If self-employment is your primary or only source of income — you’re a freelancer, contractor or small business owner — your tax situation has a few more moving parts than a side hustler’s, but the fundamentals are the same.
Schedule C: Your Business Income Form
You’ll report your self-employment income and expenses on Schedule C, which gets filed alongside your regular federal return. It’s where you list what you earned, what you spent and what your net profit was. Tax software walks you through it question by question.
The Home Office Deduction
If you use part of your home exclusively and regularly for business, you may be able to deduct a portion of your rent or mortgage, utilities and internet as a home office expense. There are two methods — the simplified method (a flat rate per square foot) and the regular method (a percentage of actual home expenses). For most beginners, the simplified method is easier and perfectly adequate. (This deduction is for the self-employed only. If you’re a W-2 employee who works from home, see the next section.)
Health Insurance Premiums
If you’re self-employed and pay for your own health insurance, you may be able to deduct those premiums. This is one of the most valuable deductions available to self-employed individuals and is worth knowing about.
Retirement Contributions
Self-employed individuals can contribute to tax-advantaged retirement accounts like a SEP-IRA or Solo 401(k). Contributions reduce your taxable income, which is a meaningful benefit. If you’re self-employed full-time, it’s worth looking into even early in your career.
Working From Home: What You Can (and Can’t) Deduct
Working from home looks different depending on your employment status, and the rules are very different for W-2 employees versus self-employed individuals.
If You’re a W-2 Employee
If you’re a traditional employee who works from home, even full time, you generally cannot deduct home office expenses on your federal return under current tax law. This changed with the 2017 Tax Cuts and Jobs Act, and it catches a lot of people off guard. That said, some states do still allow W-2 employees to deduct home office expenses on their state return. Check your state’s rules or ask a tax professional if this applies to you.
If You’re Self-Employed or a Gig Worker
As covered above, the home office deduction is available to you as long as the space is used regularly and exclusively for work. A kitchen table where you also eat dinner generally doesn’t qualify. A dedicated desk or room used only for work does.
First-Timer Tip: The “exclusive use” rule for home offices is one the IRS takes seriously. If you’re going to claim it, make sure the space genuinely qualifies. A corner of your bedroom where you also watch TV likely won’t hold up.
Internet and Phone
Self-employed workers and gig workers can deduct the business-use portion of their internet and phone bills. If you use your phone 50% for work, you can deduct 50% of the bill. Keep it reasonable and documentable.
Quarterly Estimated Taxes: What They Are and Who Needs Them
If you’re self-employed, a gig worker or have significant side hustle income, you may need to pay taxes throughout the year rather than just at filing time. These are called quarterly estimated taxes, and they’re one of the most important concepts for anyone earning income without withholding.
Why They Exist
The U.S. tax system is a pay-as-you-go system. When you have a traditional job, your employer handles this automatically. When you don’t, you’re expected to make estimated payments four times a year to cover what you’ll owe. If you don’t pay enough throughout the year, you may face an underpayment penalty when you file, even if you pay your full balance by the filing deadline.
Who Needs to Pay Them
As a general rule, if you expect to owe $1,000 or more in federal taxes from self-employment or other non-withheld income, you should be making quarterly payments. Tax software can help you calculate the right amount, and the IRS has a worksheet for this as well.
How to Pay
Quarterly payments are due four times a year, typically in April, June, September and January. You can make payments directly through the IRS website using the IRS Direct Pay tool or the Electronic Federal Tax Payment System (EFTPS). Both are free.
First-Timer Tip: A common approach is to set aside 25–30% of every self-employment payment you receive into a separate savings account designated for taxes. It keeps the money out of sight and available when payments are due.
When to Call in a Professional
Sometimes understanding self-employment taxes for beginners means knowing when to ask for help Here are the situations where we’d strongly recommend getting a tax professional involved:
- Your self-employment income is your primary source of income
- You’re unsure whether your home office qualifies for a deduction
- You have both W-2 income and significant self-employment income
- You missed quarterly estimated tax payments
- You received a notice from the IRS
- You’re not sure whether your gig work qualifies as a hobby or a business
- You just want someone to review your return before you submit
A CPA (certified public accountant) or enrolled agent (EA) are your best options for tax help. Many offer free initial consultations, and their fees are often deductible as a business expense.
If cost is a concern, the IRS’s VITA program (Volunteer Income Tax Assistance) offers free tax help for individuals who generally earn $67,000 or less. You can find the locator here.
You Did It, First-Timer!
Navigating self-employment taxes for beginners is genuinely one of the trickier parts of adulting. But now you understand the basics and understand that keeping good records, setting money aside as you earn it and asking for help when things get complicated are key. You’ve got this.
This post is for informational purposes only and is not a substitute for professional tax advice. Tax laws change — always verify current rules with the IRS or a qualified tax professional.
Ready to tackle more life skills? Check out our Beginner’s Guide to Buying a New TV or the Beginner’s Guide to TSA PreCheck.
Disclaimer: This post is for informational purposes only and isn’t a substitute for professional tax advice. When in doubt, consult a qualified tax professional.
