The Internal Revenue Service is cracking down on a specific category of income that many Americans increasingly rely on: side hustles.
As of 2025, approximately 27% of American workers had some form of side income, according to a Bankrate survey (1). However, for many of these side hustlers the income generated from these gigs is negligible. In 2025, the median hustler earned just $200 a month.
If you think the income is too small for the IRS to bother with, think again. Funding unlocked by the Inflation Reduction Act of 2022 allowed the agency to modernize its operations and expand its use of sophisticated data analytics and artificial intelligence tools, according to the TXCPA (2).
In other words, the tax man is now more of a tax bot. And no amount of income is too small for monitoring software.
If you’re a freelancer or gig worker, here’s how these changes to the IRS could affect you.
No amount of earned income is too small for the increasingly automated IRS to track. However, the agency says that 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 money you earn from ride-sharing apps, rent out part of your property, sell used or new items online, run errands or offer creative freelance services.
So if you rented out a spare bedroom on Airbnb and earned 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 down. The IRS receives large amounts of data from third-party vendors and any corporations you interact with. So if a business paid you for gig work, they must send a 1099 form to report it (4). Airbnb and Uber, for example, confirm this reporting requirement on their websites (5, 6).
Direct payments to your bank account are, of course, reported by your banking institution, while payments to peer-to-peer (P2P) apps are also reported to the IRS. According to Intuit Turbotax (7), P2P payment processors such as Venmo and Paypal are required to report accounts with more than 200 transactions and $20,000 in net transaction value in a single tax year.
Tracking physical cash transactions can be a bit more difficult, but the IRS can track purchases, payments, transfers and bank deposits. The law mandates the declaration of any cash transaction over $10,000 and heavy use of cash can make you more vulnerable to an audit (8).
Read more: The average net worth of Americans is a staggering $620,654. But it makes almost no sense. Here’s the number to calculate (and how to make it skyrocket)
First, track everything. Keep a simple ledger or accounting app that links all income and expenses to your side job. Second, report all income, even if it feels small and doesn’t show up on any tax forms.
Accurate reporting not only lowers the tax bill, it also creates potential deductions. Any business expenses related to your gig work can be used to offset revenue. For example, if you earned $2,000 this year from driving for Uber but spent $1,000 on repairs, maintenance and mileage, you may be liable for $1,000 in net income. If you neglect to report and the IRS discovers this income years later, you could be on the hook for taxes and penalties on the full aggregate amount of $2,000 for not reporting the expense.
Third, separate your finances. Reconciling your personal and business transactions is, perhaps, the quickest way to create a tax nightmare. A dedicated bank account and credit card for side-hustle activity can dramatically reduce errors. Finally, set aside money for taxes as you earn it, so the bill doesn’t surprise you in April.
The message from the IRS is straightforward: Side-hustle income is no longer flying under the radar. Reporting it correctly, and on time, is the best way to prevent an unwanted letter from Uncle Sam.
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Ramsay (1); TXCPA (2); IRS (3, 4, 8); Airbnb (5); Uber (6); Turbocharger (7)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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