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The IRS is cracking down on a type of income earned by millions of people. Here’s how to prevent a letter from Uncle Sam
The Internal Revenue Service is cracking down on a specific category of income that many Americans are increasingly reliant on: side hustles.
As of 2025, roughly 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 that 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 the use of sophisticated data analytics and artificial intelligence tools, according to TXCPA (2).
In other words, the tax man is more of a tax bot now. And no amount of income is too small for software to monitor.
If you’re a freelancer or a gig worker, here’s how these changes at the IRS could impact you.
No amount of earned income is too small for an increasingly automated IRS to track. Although the agency does say that you only need to report any side income above $400 a year (3).
The agency also uses a relatively broad definition of “gig work.” Any amount you earn from ride sharing apps, renting out a portion of your property, selling used or new items online, running errands or offering creative freelance services falls under this category.
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. The IRS receives tremendous 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 in a 1099 form to report it (4). Airbnb and Uber, for instance, 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 on peer-to-peer (P2P) apps are also reported to the IRS. P2P payment processors such as Venmo and Paypal are only required to report accounts with more than 200 transactions and $20,000 in net transaction value in a single tax year, according to Intuit Turbotax (7).
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Physical cash transactions may be a little more difficult to track, but the IRS can still track purchases, payments, transfers and bank deposits. The law mandates declaration of any cash transaction over $10,000 and heavy use of cash could make you more vulnerable to an audit (8).
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First, track everything. Keep a simple ledger or accounting app that records all income and expenses tied to your side work. Second, report all income, even if it feels small and even if no tax form shows up.
Accurate reporting doesn’t just create a tax bill, it also creates potential deductions. Any business expenses related to your gig work can be used to offset the revenue. For instance, if you earned $2,000 this year from driving for Uber but spent $1,000 on repairs, maintenance and mileage, you could be liable for just $1,000 in net income. If you neglect to report and the IRS discovers this revenue years later, you could be on the hook for taxes and penalties on the full gross amount of $2,000 because you didn’t report expenses.
Third, separate your finances. Mixing up 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, so the bill doesn’t surprise you in April.
The IRS’s message is straightforward: side-hustle income is no longer flying under the radar. Reporting it accurately, and on time, is the best way to prevent an unwelcome letter from Uncle Sam.
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Article sources
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Ramsey (1); TXCPA (2); IRS (3, 4, 8); Airbnb (5); Uber (6); TurboTax (7)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.