*Since this is classified as hobby income, you generally do not pay the 15.3% Self-Employment tax required for businesses.
Note: This calculator uses simplified 2024 federal tax brackets. It does not account for state taxes, credits, or itemized deductions. Always consult a tax professional for official filing advice.
Understanding Hobby Income Taxes: A Complete Guide
Do you have a side project, a crafting passion, or a weekend gig that brings in some extra cash? Whether you're selling knitted sweaters on Etsy or occasionally breeding pedigreed cats, the IRS wants to know about it. However, how you report that income depends entirely on whether the IRS classifies your activity as a hobby or a business.
Hobby vs. Business: What's the Difference?
The primary distinction the IRS makes is based on "profit motive." If you operate your activity with the intent to make a profit, it's generally a business. If you do it mainly for recreation or pleasure, it's a hobby.
Business: You can deduct business expenses even if they exceed your income (resulting in a loss). You must pay Self-Employment tax (15.3%) on net earnings over $400.
Hobby: Under the Tax Cuts and Jobs Act (TCJA), you cannot deduct any hobby expenses from your hobby income on your federal return. However, you generally do not pay Self-Employment tax on hobby income.
How This Calculator Works
This calculator estimates your tax liability by adding your hobby income to your other taxable income sources. Because hobby income is treated as "Other Income" on Schedule 1 (Form 1040), it is taxed at your ordinary marginal income tax rate.
Example Calculation
Imagine you work a full-time job earning $60,000 (after standard deductions) and earn an additional $5,000 from a hobby. If you are a single filer, your marginal tax rate is likely 22%. Your hobby tax would be calculated as:
$5,000 × 0.22 = $1,100 in Federal Tax.
While you pay $1,100 in income tax, you save approximately $700+ that you would have otherwise paid in Self-Employment tax if it were a registered business. However, you cannot deduct the cost of supplies or materials for that hobby.
The "9 Factors" the IRS Uses
The IRS uses these nine factors to determine if your activity is a hobby:
Whether you carry out the activity in a businesslike manner.
Whether the time and effort put into the activity indicate an intention to make a profit.
Whether you depend on the income for your livelihood.
Whether your losses are due to circumstances beyond your control.
Whether you change methods of operation to improve profitability.
Whether you have the knowledge needed to carry on the activity as a successful business.
Whether you were successful in making a profit in similar activities in the past.
Whether the activity makes a profit in some years.
Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
Reporting Hobby Income
Even if you don't receive a 1099-K or 1099-NEC, you are legally required to report all hobby income. You typically report this on Schedule 1, Line 8i of your Form 1040. Because you cannot deduct expenses, you must report the "Gross Income"—the total amount of money you received before any costs.
Frequently Asked Questions
Q: Can I deduct the cost of materials for my hobby?
A: Since 2018, federal law does not allow miscellaneous itemized deductions for hobby expenses. You must pay tax on the full amount you earned.
Q: What if I make a profit 3 out of 5 years?
A: The IRS generally presumes an activity is for profit if it was profitable in at least three of the last five tax years.
function calculateHobbyTax() {
var hobbyInc = parseFloat(document.getElementById("hobbyIncome").value);
var otherInc = parseFloat(document.getElementById("otherTaxableIncome").value);
var status = document.getElementById("filingStatus").value;
if (isNaN(hobbyInc)) hobbyInc = 0;
if (isNaN(otherInc)) otherInc = 0;
var totalIncome = hobbyInc + otherInc;
var taxRate = 0;
// Simplified 2024 Marginal Brackets (Single)
if (status === "single") {
if (totalIncome <= 11600) taxRate = 0.10;
else if (totalIncome <= 47150) taxRate = 0.12;
else if (totalIncome <= 100525) taxRate = 0.22;
else if (totalIncome <= 191950) taxRate = 0.24;
else if (totalIncome <= 243725) taxRate = 0.32;
else if (totalIncome <= 609350) taxRate = 0.35;
else taxRate = 0.37;
}
// Simplified 2024 Marginal Brackets (Married)
else if (status === "married") {
if (totalIncome <= 23200) taxRate = 0.10;
else if (totalIncome <= 94300) taxRate = 0.12;
else if (totalIncome <= 201050) taxRate = 0.22;
else if (totalIncome <= 383900) taxRate = 0.24;
else if (totalIncome <= 487450) taxRate = 0.32;
else if (totalIncome <= 731200) taxRate = 0.35;
else taxRate = 0.37;
}
// Simplified 2024 Marginal Brackets (Head of Household)
else {
if (totalIncome <= 16550) taxRate = 0.10;
else if (totalIncome <= 63100) taxRate = 0.12;
else if (totalIncome <= 100500) taxRate = 0.22;
else if (totalIncome <= 191950) taxRate = 0.24;
else if (totalIncome <= 243700) taxRate = 0.32;
else if (totalIncome <= 609350) taxRate = 0.35;
else taxRate = 0.37;
}
var fedTaxOnHobby = hobbyInc * taxRate;
var seSavings = hobbyInc * 0.1413; // Effective SE tax is roughly 14.13% of gross
var takeHome = hobbyInc – fedTaxOnHobby;
document.getElementById("resTaxRate").innerText = (taxRate * 100).toFixed(0) + "%";
document.getElementById("resHobbyTax").innerText = "$" + fedTaxOnHobby.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("resSeSavings").innerText = "$" + seSavings.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("resTakeHome").innerText = "$" + takeHome.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("resultsArea").style.display = "block";
}