Side hustlers face an unexpected tax increase

Alamy: Navigating the World of Side Gigs and Taxes

In today’s economy, more and more people are turning to side gigs to supplement their full-time income. Whether it’s delivering food for app-based companies, starting a YouTube channel, or reselling items online, side hustles have become a popular way to make ends meet. However, with the rise of side gigs comes a new set of challenges, particularly when it comes to taxes.

Meet Milo, a 29-year-old maintenance worker in London. Despite having a full-time job at a university, Milo decided to take on a side gig delivering food for Uber Eats and running a YouTube channel called London Eats. While the extra income is welcome, Milo now finds himself juggling multiple streams of income and the associated paperwork. “Keeping records is one of the hardest things when it comes to being self-employed,” he admits.

According to a recent survey by insurance company Aviva, one in five Britons has started a side hustle since the start of the pandemic, with many citing the need to make ends meet in financially challenging times. The average income from these side hustles is nearly £500 a month. However, with this extra income comes an extra tax bill, and many new side hustlers are unprepared for the tax implications of their additional earnings.

Historically, the traditional career path involved working for a company where taxes were deducted from your paycheck. However, with the rise of the gig economy and side hustles, more people are now working for themselves in addition to their full-time jobs. This means that taxes are not automatically deducted from their earnings, and individuals are responsible for reporting and paying taxes on their own.

Stevie Heafford, a tax partner at London tax firm HW Fisher, explains that trading profits, whether from a primary or secondary source of income, have always been taxable. However, many new side hustlers may not be aware of this, especially if they are used to having taxes withheld by their employers. In the US, the Internal Revenue Service (IRS) is also implementing changes to ensure that earnings from side gigs are properly reported and taxed.

The shift towards side hustles and alternative forms of income is driven by the need to keep up with rising inflation rates. Kathy Pickering, chief tax officer at H&R Block, notes that more people are turning to side gigs to make ends meet. However, what starts as a simple way to earn extra income can quickly become complicated when it comes to taxes.

In the United States, 39% of people report having some form of secondary income, with the average American making $810 a month from freelance work. For individuals like Milo, who have both a full-time job and a side gig, navigating the tax implications can be challenging. He believes that gig workers should have a separate tax system to simplify the process and avoid costly mistakes.

As more people turn to side hustles to supplement their income, tax experts suggest that tax rules should be updated to reflect the changing nature of work. Simplifying tax regulations could help individuals accurately report their taxable income and avoid penalties for under-declaring or late payment of taxes. By aligning tax rules with the way people earn money today, authorities can ensure that everyone pays their fair share while reducing the burden on individuals navigating the complexities of multiple streams of income.

In conclusion, while side hustles can provide much-needed extra income, it’s essential for individuals to understand the tax implications of their additional earnings. By staying informed and keeping accurate records, side hustlers can avoid surprises come tax time and ensure that they are compliant with tax regulations. As the gig economy continues to grow, adapting tax rules to accommodate the changing nature of work will be crucial in ensuring a fair and efficient tax system for all.