The $400 Rule: When a Side Gig Means You Have to File a Return and Pay Self-Employment Tax

A college student drives for a delivery app on weekends. A retiree does a little bookkeeping for a neighbor's shop. A teacher sells lesson plans online in the summer. None of them earns much. Most of them assume they do not need to file.

Many of them are wrong, and the reason is a number most people have never heard of: $400.

The rule

IRC Section 6017 says every individual, other than a nonresident alien, who has net earnings from self-employment of $400 or more for the taxable year must make a return with respect to the self-employment tax.

That rule stands on its own. It does not care whether your total income is below the regular income tax filing threshold. You can owe no income tax at all and still be required to file a return to report and pay self-employment tax.

The companion rule is in IRC Section 1402(b)(2). If your net earnings from self-employment are less than $400, they are not self-employment income, and there is no self-employment tax. The 2025 Schedule SE instructions put both sides together: you must file Schedule SE and pay self-employment tax if your net earnings from self-employment are $400 or more.

What counts toward the $400

"Net earnings from self-employment" is a defined term. Under IRC 1402(a), it is generally the gross income from a trade or business you carry on, minus the deductions attributable to it. For most gig workers, that starts with Schedule C net profit.

Two adjustments matter:

• The 92.35% step. Section 1402(a)(12) reduces net earnings by half of the combined 15.3% rate before the $400 test. On Schedule SE, you multiply profit by 92.35% and then compare the result to $400. In practice, the requirement kicks in at a Schedule C profit of about $434.
• All businesses combined. Treas. Reg. 1.1402(a)-2(c) says that if you have more than one trade or business, your net earnings are the aggregate of the net income and losses of all of them. A loss in one business offsets income in another. Driving for two apps and selling crafts counts as one combined number for this test.

For the full math, see how self-employment tax is calculated.

A special rule for church employees

There is one lower threshold worth knowing. The 2025 Schedule SE instructions say that if you had church employee income of $108.28 or more, you must pay self-employment tax on it and generally file Schedule SE. Church employee income is defined in the Schedule SE instructions, and if you think it applies to you, read them closely. It is a narrow rule, but it catches people by surprise.

Small income is still income. And $400 of it is enough to put you on the hook for a return.

Why this matters more than the dollars

On $1,000 of net profit, the self-employment tax is modest. The bigger issue is what happens when you are required to file and do not.

No return means no statute of limitations

Under IRC 6501(a), the IRS generally has three years after a return is filed to assess more tax. Under IRC 6501(c)(3), if you fail to file a required return, the tax may be assessed at any time. The clock never starts.

That means a side gig from years ago, where you were required to file and did not, can still be assessed today. It rarely gets cheaper with time, because penalties and interest keep running.

The IRS may already have the paper

If a platform or client filed a Form 1099-NEC or 1099-K with your name on it, the IRS has a record of income and no return to match it to. The thresholds for those forms are higher than $400, so not every small gig generates one. But many do, and a gap between information returns and your filing history is exactly what IRS matching programs are designed to find. See Form 1099-K for gig workers and Form 1099-NEC for contractors.

Who gets caught by this rule

• Students and young workers with a few months of app-based delivery or tutoring income.
• Retirees with a little consulting or freelance work on top of Social Security.
• W-2 employees with a small side business who assume their employer withholding covered everything. Withholding does not cover self-employment tax on side income unless you planned for it. See W-2 job plus side gig.
• Dependents. Being claimed on a parent's return does not exempt you from Section 6017. If your own net earnings from self-employment are $400 or more, you file.

What if you are below $400?

If your combined net earnings from self-employment are under $400, you owe no self-employment tax under Section 1402(b)(2). That does not necessarily mean you have nothing to report. The income is still part of your gross income under IRC Section 61, and whether you must file an income tax return depends on your total income, filing status, and other factors. Below $400, Section 6017 just is not the rule forcing you to file.

Keep records either way. If the IRS ever asks, you want to be able to show your gross receipts and expenses, and why your net was under the line. IRC 6001 and Treas. Reg. 1.6001-1(a) require you to keep records sufficient to establish your income and deductions.

If you missed this in past years

If you had $400 or more of net self-employment earnings in prior years and did not file, the fix is to file the missing returns with Schedule SE and deal with the balance. The sooner you do, the sooner the assessment clock starts running on those years.

Before you file a stack of old returns, think about sequence and records. Gather your 1099s, bank statements, and platform reports for each year. Reconstruct expenses where you can, using the recordkeeping standards the IRS applies. If several years or larger amounts are involved, talk to a tax attorney about how to approach it. Our firm's overview of unfiled tax returns explains the bigger picture.

The $400 rule is small. Ignoring it is not.