If you earn money from a side activity that isn't quite a full-fledged business, the IRS classifies this as Hobby Income. Understanding how this is taxed is crucial because, unlike a business, you generally cannot deduct expenses to offset your hobby earnings under current tax laws.
Key Rule: Since the Tax Cuts and Jobs Act of 2017, individuals can no longer deduct hobby expenses from their hobby income on federal returns. You are taxed on the gross amount of your hobby earnings.
Single
Married Filing Jointly
Estimated Federal Tax on Hobby Income
$0.00
How Hobby Income is Taxed
Hobby income is reported on Schedule 1 (Form 1040), line 8j. Because it is not considered self-employment income, you do not have to pay the 15.3% Self-Employment (Social Security and Medicare) tax on it. However, it is added to your total Adjusted Gross Income (AGI) and taxed at your ordinary marginal income tax rate.
Hobby vs. Business: What's the Difference?
The IRS uses several factors to determine if your activity is a hobby or a business. The primary factor is whether you carry out the activity with a profit motive. A business generally aims to make a profit 3 out of every 5 years.
Business: You can deduct expenses, but you must pay self-employment tax.
Hobby: You pay no self-employment tax, but you cannot deduct any expenses.
Example Calculation
Imagine you are a single filer earning $60,000 at your regular job. You also make $4,000 selling handmade pottery as a hobby. Since your marginal tax rate for that bracket is 22%, you would owe approximately $880 in federal income tax on that $4,000 ($4,000 x 0.22). You cannot subtract the cost of clay or kiln firing from that $4,000 total.
function calculateHobbyTax() {
var hobbyRev = parseFloat(document.getElementById('hobbyRevenue').value);
var otherInc = parseFloat(document.getElementById('otherIncome').value);
var status = document.getElementById('filingStatus').value;
var resultArea = document.getElementById('resultArea');
var taxDueDisplay = document.getElementById('taxDue');
var taxExpDisplay = document.getElementById('taxExplanation');
if (isNaN(hobbyRev) || isNaN(otherInc)) {
alert("Please enter valid numbers for income fields.");
return;
}
// 2024 Simplified Federal Brackets for estimation
var brackets;
if (status === 'single') {
brackets = [
{ cap: 11600, rate: 0.10 },
{ cap: 47150, rate: 0.12 },
{ cap: 100525, rate: 0.22 },
{ cap: 191950, rate: 0.24 },
{ cap: 243725, rate: 0.32 },
{ cap: 609350, rate: 0.35 },
{ cap: Infinity, rate: 0.37 }
];
} else {
brackets = [
{ cap: 23200, rate: 0.10 },
{ cap: 94300, rate: 0.12 },
{ cap: 201050, rate: 0.22 },
{ cap: 383900, rate: 0.24 },
{ cap: 487450, rate: 0.32 },
{ cap: 731200, rate: 0.35 },
{ cap: Infinity, rate: 0.37 }
];
}
function getTax(income) {
var tax = 0;
var previousCap = 0;
for (var i = 0; i brackets[i].cap) {
tax += (brackets[i].cap – previousCap) * brackets[i].rate;
previousCap = brackets[i].cap;
} else {
tax += (income – previousCap) * brackets[i].rate;
break;
}
}
return tax;
}
var taxWithoutHobby = getTax(otherInc);
var taxWithHobby = getTax(otherInc + hobbyRev);
var hobbyTaxOnly = taxWithHobby – taxWithoutHobby;
var marginalRate = (hobbyRev > 0) ? (hobbyTaxOnly / hobbyRev) * 100 : 0;
resultArea.style.display = 'block';
taxDueDisplay.innerText = '$' + hobbyTaxOnly.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
taxExpDisplay.innerText = "Based on your current income, your hobby earnings are estimated to be taxed at an effective marginal rate of " + marginalRate.toFixed(1) + "%. This calculation assumes standard deductions are already applied to your other income.";
}
Frequently Asked Questions
Do I need to report hobby income if it's under $600?
Yes. While a platform might only send you a 1099-K if you exceed certain thresholds, the IRS requires you to report all income regardless of the amount, even if you don't receive a formal tax form.
Can I ever deduct hobby expenses?
Currently, no. Prior to 2018, you could deduct hobby expenses as a miscellaneous itemized deduction to the extent of your hobby income. This was eliminated by the TCJA and is not expected to return until at least 2026, barring new legislation.
Is hobby income subject to Self-Employment tax?
No. This is the main benefit of hobby classification. You avoid the 15.3% Social Security and Medicare taxes that freelancers and business owners must pay. This can sometimes make "hobby" status more tax-efficient than "business" status if your expenses are very low.