More than a quarter of American workers now earn money through gig apps, side hustles, and freelance platforms.
DoorDash, Uber, Etsy, Rover, and a dozen others have made it easier than ever to bring in extra cash.
What many people don't realize until January arrives is that nobody is withholding taxes from those payments.
Every dollar you earned is considered self-employment income, and the IRS expects its cut.
The biggest shock for new gig workers is the self-employment tax.
Employees split Medicare and Social Security taxes with their employer, each paying 7.65 percent.
When you're your own boss, you cover both halves — 15.3 percent on your net earnings.
That's on top of regular federal income tax, and possibly state tax too.
On $20,000 of gig income, that self-employment tax alone runs about $3,000, before income tax even enters the picture.
There's an escape hatch, and it's the one gig workers ignore most: deductions.
Every mile you drive for deliveries or rideshare can be written off, and the IRS mileage rate for 2025 is 70 cents per mile.
A driver logging 15,000 work miles can deduct $10,500, which wipes out a huge chunk of taxable income.
Phone bills, phone mounts, insulated bags, parking fees, tolls, and the portion of your home used for business all count too.
The catch is that you need records — a mileage app or a simple spreadsheet beats a shoebox of receipts.
Because no tax is withheld along the way, the IRS expects quarterly estimated payments in April, June, September, and January.
Miss those, and you can owe a penalty on top of your tax bill.
A common fix: set aside 25 to 30 percent of every payout in a separate savings account the moment it lands.
If you have a W-2 job too, you can ask your employer to withhold extra from each paycheck instead, which keeps things simple.
If you earned more than $400 from gig work, you owe taxes on it — even if the app never sends you a 1099 form.
The reporting threshold for third-party payment platforms has bounced around in recent years, but your obligation doesn't depend on whether a form shows up in your inbox.
The income is taxable either way, and the IRS receives its own copy of those forms when they are issued.
A few moves before April can save real money.
Contribute to a traditional IRA or a solo 401(k) to shrink taxable income.
Track every business expense, no matter how small.
And if your side hustle is growing, a tax pro who knows self-employment rules often pays for themselves.
Some filers also qualify for the Earned Income Tax Credit or the Child Tax Credit, which can offset what you owe.
The gig economy isn't going anywhere, and neither is the tax bill that comes with it.
Final Thoughts
Treating that 15.3 percent as a built-in cost of doing business — not a surprise — is what separates hustlers who keep their earnings from those who hand a chunk back to the IRS every spring.