Self-employment taxes
When you don’t owe self-employment taxes
Example 1: A side-gig is related to your regular business
You are a photographer. You typically photograph landscapes and sell your photos online. However, a friend asks if you will photograph their wedding. The friend pays you $5,000 for this side-gig. In this case, your side-gig is related to your regular business income and should be included in income. This means you also need to pay self-employment taxes on that income.
Example 2: A side-gig is unrelated to your regular business
You are a software engineer. You work contracts for different clients and report your income as a business on a Schedule C as part of your Form 1040. However, you’re also a hobby photographer and a friend asks if you will photograph their wedding. The friend pays you $5,000 for this work.
In this case, the extra income is NOT related to your regular business and you are not in the business of photography. I would consider this money extra income and report it as such on your Form 1040. Other income goes on line 21 of Form 1040, Schedule 1 (Other Income and Adjustments to Income). You may owe state income tax too. This extra income would NOT be subject to self-employment taxes.
Example 3: A side-gig is unrelated to your regular W-2 job
You are a software engineer and work for a company as a W-2 remote employee. You don’t have a business at all so you’re not considered to be self-employed. However, you’re also a hobby photographer and a friend asks if you will photograph their wedding. The friend pays you $5,000 for this work.
In this case, you are not in the business of photography. It is a one-time job. I would consider this money extra income and report it as such on your Form 1040. Other income goes on line 21 of Form 1040, Schedule 1 (Other Income and Adjustments to Income). This also means the extra income would NOT be subject to self-employment taxes.
Income vs. self-employment tax
Hopefully you now understand better when you don’t owe self-employment taxes on that extra income you earned this year. Let’s also remember that self-employment taxes are separate from income tax. Therefore, you will owe income tax on ALL income earned whether it’s business income or a one-time gig.
It’s also important to remember that if one-time income is not subject to self-employment taxes, you also can’t claim any expenses for earning that income. In the case of being a hobby photographer, this could mean losing out on the deduction for your camera gear, software, etc.
If you don’t plan on making the side-gig a regular thing, then it’s not that big a deal. However, if you think you’ll continue that side-gig, then it might be worth taking the expense deductions and making it officially a business.
The choice is ultimately yours, but you should be aware of your options. If you’re confused over any of this or wish to understand if you’ll save some money by taking expenses for that side-gig (essentially turning it into a business), then I encourage you to reach out to a tax professional for help.
