What Self-Employed Workers Need to Know About Taxes

Have you been thinking about earning extra income to help pay your bills? Many people 50+ are turning to side gigs — and the extra income can be a real safety net when unexpected expenses come up. If you’re interested in self-employment, there are some tax and Social Security rules you need to know.

There is a lot of incorrect tax information online, and it can be hard to know what is true. This guide answers common questions about self-employment — so you can understand your taxes, avoid scams, and feel more confident about your money. During tax season, AARP Foundation Tax-Aide volunteers (who are IRS certified) can provide extra help, walk you through your options, and answer your questions.

This article provides information, but for advice specific to your situation, it’s best to check with a tax or legal professional.

Can I skip paying taxes on my side hustle if I earn less than $400?

The Verdict: NO

Most side gig income is taxed. If you earn $400 or more, you usually need to file a tax return. Even if you don’t get a 1099 form, you still need to report your income.

Do I only pay regular income tax when I’m self-employed?

The Verdict: NO

If you earn money from a side gig — like driving for Uber, selling items, or helping people online — the IRS treats you as self-employed. This means you need to pay certain taxes. The taxes you pay depend on how you earn your money:

• Federal Income Tax – Based on your total earnings
  You pay income tax on your profit, not all the money you bring in. Profit is what’s left after you subtract your expenses. Keep track of what you earn and spend during the year, and set aside some money from each payment to help cover your taxes.
• Self-Employment Tax – Covers Social Security and Medicare
  This is a separate tax for Social Security and Medicare. If you do gig work, you pay both parts of this tax (as the employer and the employee). Report all your income and include this tax when you file. This helps you earn credits for future benefits like retirement and Medicare.
• State and Local Taxes – Depending on where you live
  You may owe state or local taxes, such as income taxes or business fees, depending on where you live. Check your state’s Department of Revenue website and local government offices to understand what’s required and register if needed.
•  Sales Tax – If you sell goods or certain services
  If you sell certain goods or services, you may need to collect sales tax from customers. The rate depends on where you live, and each state sets its own rate. You may need to sign up with your state first, then charge the right tax on each sale. After that, fill out a form on a set schedule (like monthly or every few months) and send the form and the money to your state tax office.
  

Do I pay taxes on my side hustle just once a year?

The Verdict: NO

You may need to pay taxes throughout the year, not just in April. Here’s how to stay on track:

1. Estimate how much you expect to earn
   Look at what you’ve earned so far, or what you think you’ll earn from your side work this year. If your income changes from month to month, use your best guess based on what you’ve made recently.
2. Calculate your likely tax bill
   Use your estimated profit (what you earn minus your business expenses) to get a rough idea of the taxes you may owe. Many people set aside a part of each payment to be ready when taxes are due.
3. Make quarterly estimated payments
   Instead of paying all your taxes at once, you can pay a little at a time during the year. These are called quarterly payments. Here’s how to do it:
   • Estimate what you owe. A simple way is to set aside part of what you earn (about 25-30%).
   • Use Form 1040-ES. This form helps you figure out your payment.
   • Pay online. Go to IRS Direct Pay or the EFTPS system to send your payment from your bank account.
   • Follow the deadlines. Payments are usually due April 15, June 15, Sept. 15, and Jan. 15.

Paying this way can help you avoid penalties and a large bill later. The IRS also offers helpful guidance on managing taxes for gig work.

Need tax advice? Consult a qualified tax or legal professional.

Can I deduct work-related expenses?

The Verdict: YES

There are many everyday business costs that can lower the amount of income that is taxed. Keep clear records and save your receipts. Common write-offs include:

• Work supplies and materials
• A home office (if used regularly and only for work)
• Mileage or travel for business
• A portion of phone or internet costs

Learn more about what is considered “allowable business expenses.”

If I don’t get a tax form (a W-2 or 1099) from a client, do I have to report the income?

The Verdict: YES

Yes, you must report all income you earn, even if you don’t get a W‑2 or 1099 from a client. The IRS requires that all money you receive for work or services count as income you owe taxes on.

How to handle it:

• Keep careful records – note the date, amount, and client for every payment you receive. A notebook, spreadsheet, or simple app works.
• Report on your tax return – include the income on Schedule C (Profit or Loss from Business) if self-employed, or directly on your Form 1040 if it’s a one-time job or project.
• Pay self-employment tax – if you earned $400 or more from self-employment, you must pay Social Security and Medicare taxes using Schedule SE.
• Save for taxes – set aside about 25-30% of your income for federal taxes and any state taxes. Making quarterly estimated tax payments can help you avoid a large bill at the end of the year.

Important to Remember: Not receiving a tax form does not excuse you from reporting the income.

Can I trust every message I get from the IRS?

The Verdict: NO

When people hear from the IRS, they usually respond right away. Be careful — scammers often pretend to be the IRS to steal money or personal information. Protect yourself with these tips:

• The IRS will never ask you for immediate payment over the phone.
• If you get a call, email, or text, go directly to the official IRS website to confirm.
• Only share personal or financial information with trusted tax preparers.

Scammers use all kinds of tricks to get people to pay money or share personal information. Here are some simple ways to stay safe:

• Don’t share personal or financial information with unknown contacts.
• Check IRS.gov or call the IRS directly to verify any message you receive.
• Ignore high-pressure tactics — they’re a red flag.
• Work with trusted, reputable tax preparers.

Does being self-employed mean I won’t get Social Security?

The Verdict: NO

You can still get Social Security benefits if you work for yourself. When you pay self-employment taxes, you pay into Social Security and Medicare. These payments help you earn credits toward your benefits later.

Will working for myself affect my Social Security benefits?

The Verdict: MAYBE

Working for yourself will not lower your Social Security once you reach full retirement age. Paying self-employment tax can even help increase your future benefits. If you start getting your benefits early, earning too much from gig work may lower your payments for a while.

Do I really need to keep detailed records?

The Verdict: YES

Good records can save you time, stress, and money.

What to track:

• All income (including cash and app payments – Cash App, Venmo, and Zelle)
• Business expenses
• Receipts and bills you’ve sent
• Mileage logs, if you drive for work

Self-employment can offer the freedom to choose your hours and the kind of work you want to do, but it also means taking charge of your taxes and protecting yourself from scams. Knowing the basics can help you keep more of what you earn and avoid costly mistakes.