The $600 myth: do you owe tax on side income under $600?

This is the most persistent misconception in freelance tax, and it costs people real money — sometimes in unpaid tax, sometimes in tax they needlessly paid because they misunderstood which threshold applied.

You owe tax on side income under $600. You owe tax on side income of $50. The $600 figure is about paperwork, not liability.

What $600 actually means

$600 was the threshold at which a client must issue you a Form 1099-NEC. If a business paid you $600 or more during the year for services, they were required to send you that form and file a copy with the IRS.

Below $600, they were not required to send anything.

That is the entire meaning of the number. It is an obligation placed on the payer. It says nothing whatsoever about whether the money is income to you.

And from 2026 it is not $600 any more — it is $2,000

The One Big Beautiful Bill Act raised the 1099-NEC and 1099-MISC reporting threshold from $600 to $2,000 for payments made on or after 1 January 2026, indexed for inflation from 2027. The $600 figure had been fixed since 1954.

Read carefully, because the direction of this matters:

• For payments made during 2025, the threshold was still $600.
• For payments made during 2026, it is $2,000.
• The tax you owe did not change at all.

So the trap this article is about just got considerably deeper. Someone who earns $1,800 from a client in 2026 now receives no form where in 2025 they would have. If your mental model is “a form arrived, so it counts”, the number of transactions that quietly fall outside that model has roughly tripled — while the obligation to report every dollar stayed exactly where it was.

If you have relied on 1099s arriving as a way of remembering what you earned, 2026 is the year that stops working. Track income from your own records, not from your mailbox.

Why people get this wrong

The reasoning is intuitive and completely backwards: no form arrived, so the IRS does not know about it, so it must not count.

The IRS not receiving a copy does not make income untaxable. It makes it unreported income that you are still legally required to report. Those are very different things, and only one of them is a problem.

Earn $400 from one client, $300 from another and $250 from a third — no 1099s at all, because each is under the threshold — and you have $950 of taxable self-employment income. In 2026 that same logic covers far more: three clients paying $1,900 each generate no forms and $5,700 of income.

The threshold that does exist: $400

There is a meaningful number, and it is not $600.

If your net self-employment earnings are $400 or more, you must file a return and pay self-employment tax. That is a genuine statutory threshold, and it applies even if you would otherwise owe no income tax at all.

The gap between the two numbers catches people out. Someone with $500 of freelance income receives no 1099, assumes nothing is owed, and has in fact crossed the filing threshold.

Below $400 of net earnings, no self-employment tax is due. The income is still taxable for income tax purposes and still belongs on your return — it simply does not carry the 15.3%.

Where the real cost is

Self-employment tax starts from the first dollar, with no standard deduction sheltering it. On $5,000 of side income that is roughly $700, and it is due even if your income tax for the year is zero.

This is why small side businesses generate a surprising bill. People plan for income tax, find their total income is modest, and are then hit with a tax they did not know existed.

Expenses still count

The flip side, and it is worth knowing: you are taxed on net self-employment income, not gross receipts.

If you earned $900 selling something and spent $400 on materials, your net is $500. That is what the $400 threshold measures and what tax is calculated on. A genuine business expense reduces both taxes.

So track costs even on tiny side income. It is frequently the difference between crossing the $400 line and not.

Hobby or business?

If the activity is not really a business, different rules apply — and they are worse.

Hobby income is still taxable, but hobby expenses are not deductible at all since 2018. So a hobby is taxed on gross receipts with nothing to offset them.

The distinction turns on whether you are genuinely trying to make a profit. Relevant factors include whether you run it in a businesslike way, keep records, depend on the income, and have made a profit in some years. A rough guideline is profit in three of five years — miss that and you may be asked to show a genuine profit motive.

For most people freelancing deliberately, this is straightforward: you are running a business, and your expenses are deductible.

What about payment apps?

The 1099-K threshold for payment platforms moved repeatedly for years — $20,000 and 200 transactions, then a legislated drop to $600, then a series of delays landing on $5,000 for 2024 with further step-downs announced. It has now settled, and it settled in the same direction as the 1099-NEC: the One Big Beautiful Bill Act repealed the $600 rule and restored the $20,000 and 200-transaction threshold, with no further step-downs scheduled.

That is a very high bar. A freelancer taking $15,000 through Stripe across 40 invoices receives nothing at all.

The practical answer is unchanged, and now matters more: the threshold governs when a platform reports to the IRS, not whether the money is income. Someone paid $3,000 through Venmo for business who receives no form owes exactly the same as someone who receives one.

What the settled threshold does change is the direction of the risk. The worry a few years ago was casual sellers receiving forms for the first time and personal transfers being miscategorised as business income. The worry now is the opposite: real business income arriving with no paperwork behind it at all. Keep personal and business payments separate, and keep your own records, because the platforms will not be keeping them for you.

The practical version

• Track all business income, form or no form
• Track expenses too — you are taxed on the net
• If net self-employment earnings reach $400, you must file
• The $600 figure was your client’s paperwork obligation and changed nothing for you — and from 2026 it is $2,000, so even fewer forms will arrive
• The 1099-K threshold is back to $20,000 and 200 transactions, which most freelancers will never reach
• No 1099 arriving is not a signal; it is an absence of paperwork

Work out what a given amount of profit actually costs with the calculator below. For small side income the self-employment tax component is usually the surprise.