Side Hustle Taxes: What You Owe in the US and UK (2026)

Side hustle taxes work much like any self-employed income. In the US, you generally owe income tax on all side profit and self-employment tax once net earnings reach $400. In the UK, the first £1,000 of gross trading income is usually covered by the trading allowance; above that, you register for Self Assessment and pay tax on profit.

This guide answers the question most people actually ask, "do I need to pay tax on side income?", for both countries, with clearly labelled US and UK sections, worked examples and a checklist. Figures were checked against IRS and GOV.UK guidance at the time of writing. This is general information, not tax advice; check with a qualified adviser about your own situation.

Side Hustle Taxes: The Short Version

Question	United States	United Kingdom
Is side income taxable?	Yes, all income is reportable	Yes, trading income above the allowance is taxable
Small-income threshold	Self-employment tax and Schedule SE if net earnings are $400 or more	£1,000 trading allowance on gross income
Main forms	Form 1040 with Schedule C and Schedule SE	Self Assessment tax return (self-employment pages)
Extra tax for the self-employed	Self-employment tax: 15.3% on 92.35% of net earnings (Social Security part capped)	Class 4 National Insurance on profits above the lower profits limit
Paying during the year	Quarterly estimated tax or higher W-4 withholding	31 January balancing payment, plus payments on account if they apply
Platform reporting	Form 1099-K above $20,000 and 200 transactions; Form 1099-NEC from clients	Digital platforms report seller income to HMRC

United States: How Side Hustle Income Is Taxed

In the US, a side hustle run to make a profit is usually a sole proprietorship. You report income and expenses on Schedule C, and the profit flows onto your Form 1040 alongside your wages. Two separate taxes apply to that profit.

1. Federal income tax

Side profit is added to your other income and taxed at your marginal rate. If your salary already puts you in the 22% bracket, most of your side profit is taxed at 22%. Some side businesses may also qualify for the qualified business income deduction, which can reduce the taxable amount. State income tax may apply on top.

2. Self-employment tax and the $400 rule

Employers withhold Social Security and Medicare from wages and pay a matching share. When you work for yourself, you pay both halves through self-employment tax. According to the IRS:

• You generally must pay self-employment tax and file Schedule SE if your net earnings from self-employment are $400 or more.
• The rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare.
• It applies to 92.35% of your net earnings.
• The Social Security part only applies up to the annual wage base, which is $184,500 for 2026, and your wages count toward that cap first.
• You can deduct half of your self-employment tax when calculating adjusted gross income.

The $400 rule catches many people out: you may need to file a return because of self-employment tax even if your income is otherwise too low to require one.

Worked example: US side hustle

Maria works full time on a salary that puts her in the 22% federal bracket. Her weekend photography side business brings in $11,000 in 2026, with $3,000 of business expenses.

1. Net profit on Schedule C: $11,000 − $3,000 = $8,000
2. Net earnings for SE tax: $8,000 × 92.35% = $7,388
3. Self-employment tax: $7,388 × 15.3% = $1,130 (rounded)
4. Deduction for half of SE tax: about $565
5. Income tax on remaining profit: ($8,000 − $565) × 22% = about $1,636
6. Estimated federal total: about $2,766, or roughly 35% of profit, before any qualified business income deduction and before state tax

Her salary is well below the $184,500 wage base, so the full 12.4% Social Security portion applies. Because she expects to owe more than $1,000 on the side income, Maria either makes quarterly estimated tax payments or raises her paycheck withholding through a new Form W-4.

Form 1099-K and Form 1099-NEC in 2026

Two information forms matter to side hustlers:

• Form 1099-K comes from payment platforms and marketplaces. After the One Big Beautiful Bill Act, the federal reporting threshold is back to more than $20,000 and more than 200 transactions in a calendar year. Some states set lower thresholds. Details are in our 1099-K threshold guide.
• Form 1099-NEC comes from business clients who pay you for services. The reporting threshold changed for 2026; see our 1099-NEC threshold guide for the current figure.

Not receiving a form does not make income tax-free. Report everything you earned, and keep your own records so your Schedule C total is right regardless of what platforms send. Our guide to Schedule C for freelancers walks through the form line by line.

United Kingdom: How Side Hustle Income Is Taxed

In the UK, side income from selling services, making and selling goods or hiring out equipment is usually trading income. Whether you need to do anything depends first on the trading allowance.

The £1,000 trading allowance

GOV.UK explains that individuals can have up to £1,000 of gross trading income each tax year tax-free. Key points:

• If your gross trading income is £1,000 or less, you generally do not need to tell HMRC.
• The test uses gross income (takings before expenses), not profit.
• If your income is higher, you can deduct the £1,000 allowance instead of your actual expenses. You cannot claim both.
• The allowance does not apply to income from a partnership, or to income from your employer, your spouse's or civil partner's employer, or a company or partnership you or a connected person controls.

Registering and filing

If your gross trading income is over £1,000, you generally need to register for Self Assessment. GOV.UK gives the registration deadline as 5 October after the end of the tax year. For the 2025 to 2026 tax year (6 April 2025 to 5 April 2026), that was 5 October 2026. If you missed it, register as soon as possible to limit penalties. The online return and payment are normally due by 31 January following the tax year. Our guide to the Self Assessment tax return covers the process in full.

Income tax and National Insurance

Side profit is added to your salary for income tax. If your salary already uses your personal allowance, the profit is taxed at your marginal rate, usually 20% at basic rate in England, Wales and Northern Ireland (Scotland has its own bands). Class 4 National Insurance is worked out on self-employed profits alone and only applies above the lower profits limit (£12,570 at the time of writing), so many small side hustles pay none. Class 2 contributions stopped being compulsory from April 2024. Check the current rates on GOV.UK before you file.

Worked example: UK side hustle

James earns a £35,000 salary and sells handmade furniture at weekends. In the 2025 to 2026 tax year he takes £4,000 and spends £600 on materials and tools.

Method	Calculation	Taxable profit
Actual expenses	£4,000 − £600	£3,400
Trading allowance	£4,000 − £1,000	£3,000

The trading allowance gives the lower profit, so James uses it. His salary already uses his personal allowance, so the £3,000 is taxed at 20%: £600 income tax. His self-employed profit is below the Class 4 lower profits limit, so no Class 4 National Insurance is due. He needed to register by 5 October 2026 and must file and pay by 31 January 2027. If his expenses had been higher than £1,000, claiming actual expenses would have been better.

Making Tax Digital

From 6 April 2026, sole traders and landlords with qualifying income over £50,000 must use Making Tax Digital for Income Tax, with the threshold falling to £30,000 from April 2027. Qualifying income is gross self-employment and property income, not your salary, so most side hustles are well below these thresholds for now.

Records Every Side Hustler Should Keep

Good records make side hustle taxes far less painful, in either country. Keep:

• A copy of every invoice you send, numbered in sequence.
• Bank statements, ideally from a separate account used only for the side business.
• Receipts for every expense you plan to claim. See our guide on how to track business expenses.
• Platform statements and any 1099 forms (US).
• Mileage logs if you drive for the business.

Issuing proper invoices, even for small jobs, gives you a clean income record. The US invoice generator and UK invoice generator have locale presets for currency and date formats, and you can download each invoice as a PDF for your records.

Deductible Expenses That Reduce Side Hustle Taxes

In both countries, legitimate business costs reduce taxable profit. Common examples include equipment and software, materials, a share of phone and internet costs, business mileage, platform and payment fees, advertising, and training directly related to the work. Personal costs and the private share of mixed costs are not deductible. In the US, an activity treated as a hobby rather than a business generally cannot deduct expenses under current rules, which is one more reason to run your side hustle in a businesslike way.

Common Mistakes With Side Hustle Taxes

• Assuming small means tax-free. In the US there is no general "under $600" or "under $20,000" exemption; those are reporting thresholds for forms, not tax thresholds.
• Using profit for the UK allowance test. The £1,000 trading allowance test looks at gross takings, so £1,800 of sales with £900 of costs is still over the limit.
• Spending the tax money. Moving a set share of each payment into a separate savings account stops a large bill arriving with nothing to pay it.
• Mixing personal and business money. A separate account makes records, expense claims and any enquiry far simpler.
• Missing the registration deadline. UK penalties can apply if you tell HMRC late, even when the tax itself is small.

Side Hustle Tax Checklist

1. Decide which country's rules apply to you (where you are tax resident).
2. Track gross income and expenses from the first sale.
3. US: if net earnings will reach $400, plan to file Schedule C and Schedule SE.
4. US: if you will owe $1,000 or more, make quarterly estimated payments or adjust W-4 withholding.
5. UK: if gross trading income will exceed £1,000, register for Self Assessment by 5 October after the tax year ends.
6. UK: compare actual expenses with the £1,000 trading allowance and use whichever is better.
7. Set aside a share of every payment for tax, commonly 25% to 30% of profit.
8. Check state or devolved rules (US states, Scottish income tax).

Conclusion

Side hustle taxes are manageable once you know the thresholds: $400 of net earnings for US self-employment tax and £1,000 of gross trading income for the UK trading allowance. Keep records from day one, set money aside, and file on time. For more on rules and deadlines, browse the tax compliance guides, and create clean, numbered invoices for every job with the free invoice generator. For anything beyond the basics, speak to a qualified tax adviser.