Side hustle: extra income, with its own rules and responsibilities

A side hustle is extra income earned outside a main job, and it comes with its own tax responsibilities. Here’s what to know before starting one.

What is a side hustle?

A side hustle is a way of earning additional income outside a primary job, typically on a flexible, part-time basis that fits around a main work schedule. Common examples include freelance work, driving or delivering for a gig platform, tutoring, selling handmade or resold goods, or offering a specific skill or service on a project basis.

How side hustle income is taxed

Side hustle income counts fully as earned income for tax purposes, and unlike a traditional job where an employer withholds taxes automatically, tracking and reporting this income is generally a personal responsibility, along with paying self-employment tax covering both the employee and employer portions of Social Security and Medicare contributions. According to the IRS⁠(opens in new window), a tax return must be filed if net earnings from self-employment, including gig or side hustle work, are $400 or more, even if it’s a side job, part-time, or temporary, and estimated tax payments may be required throughout the year if there’s no employer withholding tax automatically.

Getting started with a side hustle while working full-time

Starting a side hustle alongside a full-time job requires being realistic about the actual time that can be committed without harming primary job performance or personal wellbeing, since an overly ambitious side hustle schedule that leaves someone exhausted often backfires on both fronts. Starting with a modest, clearly bounded time commitment, then expanding only if it’s genuinely sustainable, tends to work better than diving in at full intensity from the very beginning.

For a broader look at building extra income while still working full-time, see this guide to making extra income while working full-time⁠(opens in new window).

Quick calculation

Imagine a side hustle generates an illustrative 800 units of monthly revenue, but after accounting for materials, platform fees, and a rough estimate for self-employment tax, actual net income from the activity is closer to 500 units. If side hustle income is intended specifically to increase a transfer to family abroad, budgeting around the accurate 500-unit net figure, rather than the more impressive 800-unit gross revenue, protects against overcommitting based on income that won’t actually be fully available once taxes and costs are properly accounted for.

Common side hustle mistakes worth avoiding

Underpricing time or service is one of the most common side hustle mistakes, particularly when starting out and feeling uncertain about what to charge, since consistently underpricing can mean the effective hourly return, once all actual time invested is factored in, is considerably lower than it appears from the total revenue alone. Failing to track expenses carefully is another common mistake, since legitimate business expenses can meaningfully reduce taxable income if properly documented, but only when adequate records have been kept throughout the year rather than trying to reconstruct them at tax time.

Using side hustle income toward a specific goal

Because side hustle income is often variable and separate from a primary paycheck, many people find it works well as dedicated funding for a specific goal, an emergency fund, a buying plan, or an increase to a regular transfer abroad, rather than simply blending it into general spending money. This deliberate earmarking helps side hustle income feel purposeful and keeps its use aligned with a specific priority, rather than disappearing into day-to-day spending without much to show for the extra effort involved.

Formalizing a side hustle as it grows

If a side hustle grows significantly, considering whether to formalize it as a registered business, obtaining an EIN and potentially forming an LLC, becomes a relevant question, since formalizing can offer liability protection and sometimes tax advantages once income and activity reach a meaningful scale. This step isn’t necessary for every side hustle, particularly a small, occasional one, but it’s worth revisiting the question periodically as a side hustle’s revenue and complexity grow, rather than assuming the informal structure that worked at the start will remain the right choice indefinitely.

Side hustle platforms and how they report your income

Many gig and freelance platforms now issue a 1099 form once earnings cross a certain threshold, sending a matching copy directly to the IRS. Even earning below that specific threshold without receiving a form doesn’t exempt the income from being fully taxable and reportable, meaning the absence of a form is not the same as the income being exempt from a reporting responsibility.

Side hustle income and immigration status considerations

For immigrants on a specific visa category, it’s worth confirming whether current status permits self-employment or side hustle income at all, since work authorization rules vary considerably by visa type and some categories restrict income-generating activity outside a specific sponsoring employer. Checking this directly, ideally with an immigration attorney familiar with the specific status involved, before starting a side hustle protects against an unintended violation of visa terms.

In Summary

A side hustle offers real, flexible income potential, but understanding its tax responsibilities and true net profitability, not just gross revenue, keeps planning realistic and sustainable. See how much you can save on your next transfer by directing side hustle income toward the specific goals that matter most.

This publication is provided for general information purposes only and is not intended to cover all aspects of the topics discussed herein. This publication is not a substitute for seeking advice from an applicable specialist or professional. The content in this publication does not constitute legal, tax, or other professional advice from Remitly or any of its affiliates and should not be relied upon as such. While we strive to keep our posts up to date and accurate, we cannot represent, warrant, or otherwise guarantee that the content is accurate, complete, or up to date.