Do You Pay Taxes on Money Made Online? 1099-K, 1099-NEC and Self-Employment Tax

Quick answer: yes. Money you make online from selling things or doing freelance or gig work is income, and you must report it even if you don’t get a tax form. If your net profit from self-employment is $400 or more, you generally owe self-employment tax of 15.3% on top of any income tax. You only pay on your profit, so keep records of your expenses.

Which online income is taxable?

Tip: when a friend pays you back in a payment app, mark it as a personal payment if the app lets you. That helps keep it out of your tax forms.

The forms you may receive

The most important rule: these limits only decide who has to send a form. They don’t decide what’s taxable. If you earned $900 from a client and got no form, you still have to report the $900.

The forms should arrive by about the end of January. If you think you got a Form 1099-K by mistake, the IRS has a page explaining what to do.

Self-employment tax: the part that surprises people

When you have a job, your employer withholds Social Security and Medicare from your paycheck and pays half. When you work for yourself, nobody withholds anything and you pay both halves.

• The rate: 15.3% (12.4% for Social Security and 2.9% for Medicare).
• When it applies: generally when your net earnings from self-employment are $400 or more.
• The offset: you can deduct the employer-equivalent half of it when you figure your income tax.

An example with numbers

Say you earned $12,000 on freelance platforms and spent $2,000 on platform fees, software and other business costs:

You may also owe income tax on that profit, depending on your total income, deductions and credits. A common habit is to set aside 25% to 30% of your profit in a separate savings account. It’s only a rule of thumb, but it helps avoid a surprise. You can keep that money in a high-yield savings account until it’s time to pay.

What you can deduct

You can generally deduct costs that are ordinary and necessary for your work. If something is used for both work and personal life, usually only the business part counts.

• Fees charged by platforms and payment processors
• Software, website and domain costs
• Supplies and shipping
• Equipment used for the business
• Business mileage or vehicle costs
• Part of your home costs, if you qualify for the home office deduction

Save your receipts, and keep a simple spreadsheet with each income and expense. It’s much easier to do this every month than to rebuild a whole year in April.

Estimated taxes: paying during the year

Because nobody withholds tax for you, the IRS expects you to pay as you go. You generally have to make estimated tax payments if you expect to owe $1,000 or more when you file. You pay them four times a year, usually using Form 1040-ES:

If you don’t pay enough during the year, you may owe a penalty, even if you end up getting a refund. If you also have a regular job, you can ask your employer to withhold more with a new Form W-4 instead.

How to report it on your return

1. Add up all your income from every platform, with or without a form.
2. Add up your expenses.
3. Fill out Schedule C to report your profit or loss.
4. Fill out Schedule SE to figure your self-employment tax.
5. Include both with your Form 1040.

Filing for the first time? Read how to file taxes for the first time. If you don’t qualify for an SSN, you can file with an ITIN. An ITIN lets you file taxes, but it doesn’t give you permission to work in the U.S.

Common mistakes to avoid

• Thinking “no form means no tax.” All income counts.
• Reporting the gross amount and forgetting expenses. You’d pay more than you need to.
• Spending everything you earn. Set aside money for taxes each time you get paid.
• Ignoring a 1099. The IRS gets a copy too.
• Mixing personal and business money. A separate account makes your records much easier.

FAQ

Do I have to report income if I made less than $400? The $400 rule is about self-employment tax. Income is still income, and you may still have to report it on your return. Check the rules for your situation or ask a tax professional.

Do I have to pay taxes on PayPal or Venmo? You pay tax on income, not on the app. Payments for goods or services can be taxable. Gifts and repayments from friends and family are not.

What if I only sell a few used things online? If you sell personal items for less than you paid, there’s generally no taxable gain. Keep records of what you paid, in case you receive a Form 1099-K.

Is it a hobby or a business? It depends on things like whether you’re trying to make a profit and how you run the activity. The IRS has a guide on this. Hobby income is still reportable, but the rules for expenses are different.

Do I have to file state taxes too? Often yes. Most states have an income tax with their own rules, so check your state’s tax agency.

This article is for educational purposes only and is not tax advice. Rules and limits change, and they depend on your situation. Check IRS.gov or ask a tax professional. Read our Disclaimer.