The gig economy has changed how taxpayers earn money, turning spare hours into income sources that didn’t exist even a decade or so ago. Whether it’s driving passengers around town, delivering meals, or selling handmade goods online, gig work provides flexibility and opportunity. But when tax season comes, sorting out what that flexibility looks like on a 1040 can be complicated. That’s especially the case with the One Big Beautiful Bill Act (OBBBA), signed into law by President Trump in 2025, which creates some new deductions—but that also means new rules.

The gig economy is typically defined as income earned from on-demand work, services, or goods, often using online platforms. Think rideshare drivers for Lyft or Uber, delivery workers for DoorDash, freelancers, online sellers, and even those renting out property. With gig work, there’s no employer withholding taxes or Form W-2 at the end of the year. Instead, the burden of tracking, reporting, and paying taxes falls squarely on the worker.

While it’s important to report your income, you don’t want to leave tax saving deductions on the table. Some new deductions, like “no tax on tips,” also apply to gig workers. Here’s what you need to know.

One of the most important things you need to understand as a gig worker is that all income must be reported. This includes part-time work, side gigs, or temporary projects. It also includes income that never appears on a Form W-2 or 1099. Cash payments, digital transfers, goods received in exchange for services, and even virtual currency all count as income.

For reporting purposes, you may receive a Form 1099-NEC (Nonemployee Compensation), which reports payments of $600 or more to independent contractors for services. This form is typically issued by a business or platform that pays you for your work, and the amount reported generally reflects the gross amount—what you were paid before expenses.

(If that doesn’t seem quite right to you, you might be old school. The switch from reporting nonemployee compensation on Form 1099-MISC to Form 1099-NEC took effect in 2021. Then, the IRS brought back Form 1099-NEC to distinguish compensation from other types of miscellaneous income, align due dates and reduce confusion.)

Even if you don’t receive a tax form, your income is still reportable.

Form 1099-K Goes Back In Time

If you get paid through a payment app like Venmo or an online marketplace like Etsy, you might receive a Form 1099-K. This form reports the total gross amount of payments processed, which may include business income, reimbursements, fees, or even personal transactions if accounts aren’t kept separate.

OBBBA restored the reporting threshold for Form 1099-K to its pre-2022 level: more than $20,000 and more than 200 transactions in a year. While this means you might not get the form if you don’t reach those limits, it doesn't change the rule that all income must be reported.

It’s possible that you might receive two different forms for the same work since Form 1099-NEC reflects what you were paid for your work, while Form 1099-K reflects how money moved through your payment platforms. If that happens, report the income but avoid double-counting it—you can adjust your return to subtract the extra amount reported on Form 1099-K. (If your tax software doesn’t support adjustments, consider not entering the incorrect data at all.)

If you spend money on your business, you can offset your income with business deductions—provided they are ordinary and necessary expenses.

Ordinary and Necessary Expenses

An ordinary expense is one that is common and accepted in your line of work, while a necessary expense is one that is helpful and appropriate for running your business. Examples of deductible expenses may include mileage, phone and internet expenses, supplies, equipment, and online platform fees.

But don’t get greedy: Personal expenses are generally not deductible, even if they seem business-related. A good example is clothing, which often feels business-related, especially for gig workers trying to look professional. Most clothing is considered a personal expense, even if you wear it only for work. The IRS makes clear that unless is clothing (such as a uniform) is unsuitable for everyday wear , it’s treated as a personal expense.

Other common “feels businessy but isn’t” expenses include your daily commute, regular groceries while working, or a gym membership. They may support your ability to work, but they’re still considered personal living expenses, and therefore, not deductible.

New Deduction for Tips

Starting in 2025, there’s a new temporary deduction for tips, thanks to the OBBBA. Eligible workers can deduct up to $25,000 in qualified tips for the tax years 2025 through 2028. This limit applies per tax return, so it doesn't increase for married couples filing jointly. The deduction also covers the self-employed, including gig workers, and is limited to the net income from the business where the tips were earned.

There is a catch. To qualify for the deduction, tips must be properly reported. This can include reporting through Forms W-2, 1099-K, 1099-MISC, or 1099-NEC, or directly by the taxpayer using Form 4137. Even if reporting forms do not separately identify tip income in 2025, the total income must still include those tips. In other words, you cannot deduct what you have not clearly reported.

New Deduction for Overtime Likely Doesn’t Matter

There’s also a new, temporary “no tax on overtime” deduction, but you probably won’t benefit from it if you’re a gig worker. The deduction is limited to qualified overtime compensation paid to employees under federal labor law, meaning it applies to W-2 workers who receive time-and-a-half pay for hours worked over 40 in a week. Gig workers, who are typically classified as independent contractors, are not covered by those overtime rules and generally do not receive overtime premiums.

QBI Deduction Gets Staying Power

OBBBA also made the Qualified Business Income, or QBI, deduction—sometimes referred to as the Section 199A deduction—permanent. This allows eligible self-employed individuals (including gig workers) to deduct up to 20% of their qualified business income, reducing the amount of income subject to tax. QBI generally includes earnings from your trade or business after expenses, but excludes items like wages, investment income, and certain capital gains. For many gig workers whose income falls below annual threshold amounts, the deduction is straightforward but higher earners (as well as those in certain occupations—hello, lawyers and accountants) may be subject to limits.

Bonus Depreciation Allows You To Maximize Deductions

The new law also expanded bonus depreciation. Gig workers can now deduct 100% of the cost of qualifying business property, such as vehicles or computers, instead of deducting it gradually over time. Qualifying business property—items you use to run your business, like equipment, tools, or machinery, that wear out over time and are used regularly for work—must have been acquired after January 19, 2025, and placed into service in the first year. Importantly, the property must be used for business purposes more than 50% of the time.

Gig worker taxes aren’t for the faint of heart. Reporting can be complicated since you’re responsible for taxes that would normally be figured for you by an employer.

Gig workers are generally required to make estimated tax payments to the IRS throughout the year because taxes aren’t automatically withheld from paychecks. Estimated payments are typically due quarterly (April 15, June 15, September 15, and January 15). If you expect to owe at least $1,000 in tax when you file your return, you may need to make these payments to avoid penalties.

You generally won’t face an underpayment penalty if you pay at least 90% of your current year’s total tax liability or 100% of your prior year’s tax (110% if your adjusted gross income was over $150,000) over the year. For many gig workers, the prior-year method is the easiest to follow, even if this year’s earnings are unpredictable. To calculate your quarterly payment, divide that tax amount by four.

Self-Employment Tax Can Sneak Up On You

Self-employment (SE) tax is how gig workers pay into Social Security and Medicare. When you work for someone else, you pay half of those taxes, and your employer pays the other half, but when you’re self-employed, you cover both portions. The rate is 15.3% on your net earnings (12.4% for Social Security and 2.9% for Medicare) with an extra 0.9% Medicare tax for high-income taxpayers. The tax is calculated on your business profit, not your total income, and is reported on Schedule SE of your Form 1040.

Don’t Forget State and Local Taxes

State and local tax obligations create additional complexity. Depending on where the work is done and the type of goods or services offered, you might owe state income taxes, local business taxes, and sales taxes. Be sure to check with your state and local tax authorities if you’re not sure.

Business or Hobby? It Matters

Since a side hustle, unlike a full-time job, is often something you enjoy and do on a limited basis, it's important to distinguish between a hobby and a business. For tax purposes, the IRS considers whether you're trying to make a profit, including how you manage your business, whether you keep detailed records, your level of expertise, and if the business has turned a profit in at least three of the last five years (a helpful, though not definitive, guideline). Running your side project as a legitimate business can impact your tax bill: Since 2018, you generally can't deduct expenses against hobby income—the typical business expense deductions are no longer permitted.

More Tips For Gig Workers

Gig work may be flexible, but the tax rules are not. While a side hustle can feel like exactly that, the more you treat your gig like a business, the better.

Keep Business Cash and Personal Cash Separate

One of the simplest ways to run your business is to keep your business and personal finances separate. From a tax standpoint, using a dedicated bank account or credit card makes it much easier to track income and expenses, verify deductions, and avoid missing write-offs or mixing in nondeductible personal costs. It also creates a clear paper trail if the IRS ever has questions.

Keeping business and personal finances separate isn’t just about taxes. Separate accounts help you understand how your business is actually performing. It also helps build credibility with banks, lenders, and potential partners by showing that you’re running a legitimate business rather than a casual side hustle. Additionally, from a legal perspective, especially if you operate through an LLC or similar entity, maintaining that separation protects liability by demonstrating that the business is separate from you personally.

The most important part of running a business in the gig economy? Recordkeeping. Keeping excellent records can help ensure that all your earnings are reported correctly and that every allowable deduction is captured. This includes tracking payments received, saving receipts, logging mileage, and documenting business use of assets. Beyond making filing easier, great records can help if the IRS ever questions an item on your return. Without them, even legitimate deductions can be disallowed.

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