What Happens If You Forget to Report Side Income?

If you earn money from a side job or gig, it counts as taxable income. Many people forget to list it on their tax return, thinking small amounts don’t matter. But the IRS rules on reporting side income are strict; if you earned it, you must report it.

At SCL Tax Services in the Bronx, we help people correct unreported income before it becomes a serious issue. Let’s break down what happens if you forget, how the IRS responds, and what you can do to fix it.

What Counts as Side Income?

Side income is any money you make outside your main job. The IRS calls it “other income. Common examples include:

Freelance or contract work

Uber, DoorDash, or food delivery

Renting a room or property

Selling goods online (Etsy, eBay, Depop, etc.)

Tips, commissions, or bonuses not reported by an employer

Content income from YouTube, Patreon, or similar platforms

Even if you earn small amounts, such as $200 from art sales or $800 tutoring, it’s still taxable. If someone pays you more than $600, they often send a 1099 form, and the IRS gets a copy too. But even if you don’t receive a form, you still need to report the income.

What Happens If You Don’t Report Side Income?

If you forgot to report side income taxes, the IRS may notice later through their matching system. When companies and platforms send 1099 forms, the IRS checks them against your return.

Here’s what usually happens next:

Mismatch Alert: The IRS system flags missing 

income that others reported paying you.

Notice Sent: You’ll likely receive a CP2000 notice, showing what income they believe you left out.

Recalculated Tax Bill: The IRS recalculates what you owe, with penalties and interest added.

Collection Starts: If ignored, they can add liens, garnish wages, or take collection action.

Even if it’s a few hundred dollars, unreported income can cost you far more once interest and penalties add up.

IRS Rules on Reporting Side Income

The IRS rules on reporting side income are clear, all earnings count. There’s no minimum dollar amount that exempts you from reporting.

Here’s how it works in simple terms:

Self-employment tax: If you made $400 or more in net income from freelancing or gig work, you must file Schedule C and pay self-employment tax.

1099-K threshold: For 2025, payment apps like PayPal or Cash App issue a 1099-K if you received over $2,500 for business transactions. This number has changed in recent years, so check current IRS guidance.

Cash counts too: Whether you were paid in cash, crypto, or by app, income is income. Even gifts or barter for services can be taxable, so keep track of everything

When unsure, report it anyway. It’s better to overreport than risk a mismatch letter from the IRS later.

Unreported Income IRS Penalties

If you forgot to report side income taxes, the IRS charges several penalties depending on the situation. Here are the main ones:

Failure-to-file penalty: 5% of the unpaid tax per month, up to 25%.

Failure-to-pay penalty: 0.5% of the unpaid tax per month, up to 25%.

Accuracy-related penalty: 20% of the tax underpaid if your return was incorrect.

Interest: Accrues daily until the full balance is paid.

Fraud penalty or criminal charges: Rare, but possible if the IRS believes you intentionally hid income.

Even honest mistakes lead to automatic penalties. The sooner you fix it, the less you’ll owe in the long run.

How to Fix It If You Forgot to Report Side Income Taxes

Don’t panic. People forget to report side income all the time. The IRS allows you to correct it by filing an amended return.

Here’s what to do:

File an amended return (Form 1040-X):

Add the missing income and correct any related numbers.

Pay what you owe:

Doing so stops interest from growing.

Keep proof. Save receipts, invoices, and 1099 forms in case the IRS asks for verification.

Work with a tax expert. SCL Tax Services in the Bronx can review your past filings, prepare your correction, and handle any IRS letters.

You can do it yourself, but one small error might trigger more problems. Having a professional handle ensures accuracy and peace of mind!

Can You Get in Trouble for Forgetting?

Forgetting is not a crime. The IRS understands mistakes happen. What matters is how fast you fix it.

If you respond quickly and pay what you owe, the IRS usually accepts your correction. But if you ignore their letters, they’ll assume you meant to hide the income, and that’s when things get serious.

Ignoring the issue can lead to garnished wages or even tax liens on your property. Fixing it early always costs less than waiting.

How to Avoid This Problem Next Year?

If you have side income now, you’ll probably have it again. Avoid the same stress next year by building better habits:

Track all payments in one place

Save at least 25% of side earnings for taxes

File quarterly estimated taxes if you earn regularly

Keep receipts and transaction records

Work with Our Tax Preparers Before Tax Season!

At SCL Tax Services, we help Bronx taxpayers organize their records, plan for next year’s taxes, and avoid unreported income IRS penalties. Staying ahead keeps your money in your hands and helps avoiding unnecessary financial issues.

FAQs