Key takeaways

  • IRD requires you to declare income from all sources. Side hustles, freelance gigs, and Trade Me selling almost always count.
  • Your side hustle income sits on top of your salary, so it is often taxed at a higher marginal rate than you might expect.
  • You can claim business expenses against side hustle income to reduce your taxable profit.
  • GST registration kicks in once your self-employed income (not including PAYE salary) exceeds $60,000 in any rolling 12-month period.
  • Set aside 25-33% of your side hustle income for tax as it comes in. Spending it all is the most common mistake.

You have started selling things on Trade Me. Or you are doing freelance design work on weekends. Or you have picked up a few clients for personal training outside your day job. Either way, you are earning extra money, and the question is: do you need to pay tax on it?

The short answer is yes, almost certainly. IRD requires you to declare income from all sources. Here is how it works.

Is my side hustle a hobby or a business in IRD’s eyes?

This is the first question to answer, because it determines your tax obligations. IRD draws a line between hobbies and businesses. If you are doing something regularly, with the intention of making a profit, it is a business in IRD’s view, even if you also have a full-time job.

Selling the odd item you no longer need on Trade Me is probably a hobby. But if you are buying stock to resell, regularly listing handmade products, or providing services to paying clients, that is business activity. Once it crosses that line, you need to deal with tax.

The test is intent and pattern. A few one-off sales are different from a recurring stream of revenue. If you are advertising, repeating, and aiming to make money, IRD treats it as a business.

How does income tax work on a side hustle?

All your income from all sources gets added together. Your PAYE salary, your side hustle income, any investment income. The total determines your tax bracket. Your side hustle income sits on top of your salary, so it is often taxed at a higher marginal rate than you might expect.

Worked example: if your salary is $65,000 and your side hustle earns a profit of $15,000, your total income is $80,000. The side hustle income falls mostly in the 30% and 33% brackets (2025/26 rates), not the lower brackets your salary already fills up.

You declare your side hustle income by filing an IR3 individual tax return each year. Your PAYE income will already be recorded by IRD through your employer. You add the self-employed profit on to your other earnings and are taxed based on your total earnings.

Do I need to register for GST?

If your self-employed income (not including your PAYE salary) exceeds $60,000 in any rolling 12-month period, you must register for GST. Below that, registration is optional but can be beneficial if you have significant business expenses, because you can claim back the GST on those costs.

The threshold only counts self-employed income. A side hustler earning $20,000 on top of a $90,000 salary does not need to register, because the side hustle alone is well below $60,000.

What about ACC levies on side hustle income?

You will receive an ACC invoice based on your self-employed income. This is separate from the ACC that your employer already deducts from your salary. The levy depends on your type of work and is usually invoiced from September the following year.

For a side hustle in a desk-based industry earning $15,000 to $25,000, expect a combined ACC bill of a few hundred dollars. Higher-risk industries can mean significantly more. Set this aside in your tax savings account along with income tax. Note that the Work Levy and Working Safer Levy portions are deductible, while the Earners’ Levy is not deductible.

When does provisional tax kick in?

If your tax bill at the end of the year is more than $5,000 (this doesn’t include the tax already paid via PAYE) you enter the provisional tax system. That means paying income tax in three instalments during the following year instead of one lump sum. Under the standard method, the instalment dates are 28 August, 15 January, and 7 May.

Side hustlers earning around $15,000 a year usually stay under the $5,000 threshold. Earnings above $15,000 from side hustle income on top of a salary often push you into provisional tax. Once you are in, you stay in unless your circumstances change significantly.

What expenses can I deduct against side hustle income?

The good news about being taxed on your side hustle is that you can also claim business expenses against that income. This reduces your taxable profit and your tax bill.

  • Goods or materials purchased for resale or to deliver your service.
  • Home office costs (the business-use proportion of rent, power, internet).
  • Equipment and tools under $1,000 (claimed in full) or over $1,000 (depreciated, with potential 20% Investment Boost on new assets).
  • Marketing and advertising costs.
  • Software subscriptions used for the side hustle.
  • Vehicle expenses for business travel (keep a logbook).
  • Professional fees, course fees, and industry memberships.

Keep receipts for everything. Even small expenses add up over a year and they directly reduce the tax you owe.

How much should I set aside for tax on my side hustle?

The biggest mistake side hustlers make is spending all their extra income without putting anything away for tax. A good rule of thumb is to set aside 25-33% of your side hustle income into a separate savings account. The exact amount depends on your tax bracket, but this range covers most situations.

Better yet, use accounting software that calculates your tax position in real time. Afirmo shows you what you owe as you earn, so you are never guessing. The number on screen is the number to set aside, no rules of thumb required.

Do I need to tell my employer about my side hustle?

IRD does not require you to tell your employer about your side hustle. However, your employment agreement might have clauses about outside work, conflicts of interest, or moonlighting. Check your contract before you start.

Some employers require disclosure of any second income. Others only care if there is a conflict of interest with your main role. Reading your agreement once at the start avoids awkward conversations later.

Frequently asked questions

Do I have to declare side hustle income if it is small?

Yes. There is no minimum threshold below which side hustle income is exempt from declaration. Even a few hundred dollars of regular income from a profit-seeking activity needs to be declared. The penalties for not declaring are worse than the tax itself.

Can I do a side hustle while on a PAYE salary?

Yes, in most cases. Your tax obligation is the same whether you are full-time self-employed or doing a side hustle alongside an employee role. Just check your employment agreement for any conflict-of-interest clauses.

How is selling on Trade Me or Facebook Marketplace taxed?

It depends on intent. Selling personal items you no longer need is generally not taxable. Buying or making things to resell is business activity and the income is taxable. The line is whether you are profit-seeking and operating regularly.

Can I claim a home office for a side hustle?

Yes, if you regularly use part of your home for the side hustle. The proportion is based on the floor area of your workspace and the amount of time you use it for business. Same rules as full-time self-employment, just typically a smaller percentage and should be reasonable.

Afirmo tracks your side hustle income and expenses alongside any PAYE earnings, showing your real tax position in real time. Start a free trial at afirmo.com.