The IRS is cracking down on a specific income category that many Americans increasingly rely on: side hustles.
A Bankrate survey shows that as of 2025, approximately 27% of U.S. workers will have some form of side income (1). However, for many of these side hustlers, the income generated from these gigs is negligible. By 2025, the median monthly income for scammers will be only $200.
If you thought your income was too little for the IRS to bother with, think again. TXCPA stated that funds released by the Inflation Reduction Act of 2022 allow the agency to modernize operations and expand the use of sophisticated data analytics and artificial intelligence tools (2).
In other words, the taxman is now more like a tax robot. And no matter how much you earn, the software can’t monitor it.
If you’re a freelancer or gig worker, here’s how these IRS changes may affect you.
No matter how much you earn, it’s impossible for the increasingly automated IRS to track it. Although the agency does say you only need to report any side income above $400 per year(3).
The agency also uses a relatively broad definition of “gig work.” Any amount you make from ride-sharing apps, renting out part of your property, selling used or new items online, running errands, or providing creative freelance services falls into this category.
So if you rent out a spare bedroom on Airbnb and make more than $400 this year, the IRS encourages you to report it.
If you fail to report side income, the agency has several ways to track it. The IRS receives large amounts of data from third-party vendors and any companies you interact with. Therefore, if a business pays you for gig work, they must send a 1099 form to report it(4). For example, Airbnb and Uber confirm this reporting requirement on their websites (5, 6).
Of course, direct payments to bank accounts are reported by your banking institution, while payments on peer-to-peer (P2P) applications are also reported to the IRS. According to Intuit Turbotax, P2P payment processors such as Venmo and Paypal are only required to report accounts with more than 200 transactions in a single tax year and a net transaction value of more than $20,000 (7).
Physical cash transactions can be a little harder to track, but the IRS can still track purchases, payments, transfers and bank deposits. The law requires reporting any cash transactions over $10,000, and using large amounts of cash may make you more susceptible to audits(8).
Read more: The average American net worth is a surprising $620,654. But that makes almost no sense. Here are the numbers that matter (and how to make them soar)
First, keep track of everything. Keep a simple ledger or accounting app to record all income and expenses related to your side hustle. Second, report all income, even if it feels small and even if it doesn’t appear on your tax return.
Accurate reporting not only results in a tax bill, but also in potential deductions. Any business expenses associated with your gig work can be used against income. For example, if you earned $2,000 driving for Uber this year but spent $1,000 on repairs, maintenance, and mileage, you may only be responsible for $1,000 of net income. If you neglect to report and the Internal Revenue Service (IRS) discovers the income years later, you could be assessed a total of $2,000 in taxes and penalties for unreported expenses.
Third, financial separation. Mixing personal and business transactions is perhaps the quickest way to create a tax nightmare. Dedicated bank accounts and credit cards for side hustle activities can go a long way toward reducing errors. Finally, set aside some money to pay taxes as you earn it, so you won’t be surprised by the bill in April.
The message from the IRS is simple: Side hustle income can no longer be ignored. Accurate and timely reporting is the best way to prevent Uncle Sam from receiving unwanted correspondence.
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Ramsey (1); TXCPA (2); IRS (3, 4, 8); Airbnb (5); Uber (6); Turbo Tax (7)
This article provides information only and should not be considered advice. It is provided without any warranty of any kind.
