Side work helps a lot of people make ends meet. For a decent portion of taxpayers, it is the only way they can pay all the bills, enjoy some leisure activities, and put away a little for savings.
Your full-time job may be through a traditional employer that withdraws taxes from a paycheck and sends you a W-2 every year, but you may be self-employed at your side gig, too. If so, then how does that work when you file a federal tax return? Do you need to report every single dollar you make from a side job?
What Is Considered a Side Job?
The best definition for side work is a type of job that makes you money in addition to your full-time career. It may be considered work you do as a freelancer, independent contractor, or self-employed individual where you receive straight earnings. What this means is that you do not have any taxes taken out when you get paid for the side work.
If you work two jobs, but both are through a conventional employer, then it is technically not side work. Since both of the jobs are through regular employers, they will take out your taxes beforehand. If you need to report the earnings to the IRS, the employer will send you a W-2 each year.
However, freelance and independent contractor assignments are self-employed types of earning—and since taxes are not taken out with each paycheck, the IRS handles these jobs differently.
The IRS Definition of “Other Income”
The IRS defines side work as “other income,” which means the work is probably something related to a hobby, a seasonal job, or irregular work where you do not receive stable funds.
If you do this type of work, you may not have to report the side earnings—but only if the income does not reach a certain threshold. If you hit above that threshold, you are required to report your side work on a tax return.
Another term for side work is self-employed earnings. Self-employed earnings are reported on a Schedule C form. You must report all the required information regarding the job—including earnings and business expenses—with this document.
According to the IRS, self-employed earnings must be reported if the following details are true:
- The side work is regular and continuous.
- The primary purpose of the work is to make a profit.
Reporting Miscellaneous Income
The most conservative approach to filing taxes is to report anything and everything. If you stand by that method, you can report any side work under Miscellaneous Income. While it is possible that the IRS may come after taxpayers who underreport their income, the likelihood is small if the money earned from side work was minimal.
If you worked for a company or another individual that reports their own taxes, yet you were classified as a freelancer or contractor, you may receive what is called a 1099-MISC.
By law, the individual or company that hired you for self-employed work needs to send you Form 1099 if you received more than $600 from the individual or company.
The form 1099-MISC is comparable to a W-2, but made specifically for freelance earners. It is the responsibility of the individual or company to send this form by January 31st to ensure you have ample time to file your taxes.
Any earned income under $600 should be reported under the Miscellaneous Income section of the federal tax return.
Since Uncle Sam likes to tax you on every dollar earned from a side job, you should use one of the benefits of being self-employed to your advantage. The IRS allows you to deduct expenses related to the side work, which can include expenses like the following:
- A portion of your rent and utilities if you have a home office.
- Mileage used on a car for purposes related to work.
- Tools, equipment, and supplies needed for the job.
- Subscriptions and other fees for things related to the business.
- Tuition for education related to the job you are already performing.
Get Tax Help with Levy & Associates
If the earnings from side work become substantial, you may want to consider paying quarterly taxes to ease the burden when tax season arrives. For more information on quarterly taxes and filing side work earnings, contact Levy & Associates. Just call 800-TAX-LEVY—or visit us online at www.levytaxhelp.com.