How is income earned online (doing online contracted work) taxed?

Assuming you are not working full-time for one employer, the income earned would be treated as earned income and shown on a schedule C as "business income".  You would then be entitled to various deductions to the extent you have expenses related to that income and the net income, at the bottom of schedule C, would be carried over to the front page of your 1040 as taxable income. It will be extremely important to remember that you will also owe both sides (employer and employee) of the Social Security tax and the Medicare tax on the net income at the bottom of schedule C. These taxes are in addition to the income tax that will be owed and should never be overlooked or forgotten.  Good Luck

The other party will probably give you a 1099 at the end of the year showing all of the payments made to you. You then put that on Schedule C of Form 1040. If you're going to make more than $10,000 doing contract work you may want to form an S corporation to avoid the self-employment tax.

Craig W Smalley EA

Admitted to Practice before the Internal Revenue Service