Side Work: The Tax, Insurance and Employer Risks

Why this matters

Almost every tech gets asked. A neighbor wants a water heater swapped, a friend's AC quit, a customer from Tuesday's call asks if you could "just come back Saturday for cash." The money is real and the skill is yours. What goes wrong is rarely the work. It is the tax bill that shows up a year later, the claim nobody's insurance will touch, the license you did not have for that job, and the employer who finds out you did it for their customer. This card covers those four risks from the tech's side.

This is general information, not personal financial or legal advice. Where a section tells you to stop and get help, it names who and what to bring.

Risk 1: the income is taxable whether or not anyone reports it

Cash, a payment app, a check, a trade for a used truck: all of it is income on your federal return. The rule does not depend on a form arriving.

• Form 1099-NEC. A business that pays you past a reporting threshold files one. 2025 federal law raised that threshold starting with payments made in 2026, so expect fewer forms. Homeowners paying for work on their own house generally do not file them at all. Neither fact changes what you owe.
• Form 1099-K. Payment apps and card processors report payments to you once you cross their own threshold, which 2025 federal law set back to a high bar. Current as of 2026; check the IRS 1099-K page each year, because this threshold has moved repeatedly.
• Schedule C and Schedule SE. Side income goes on Schedule C, where you subtract the expenses of earning it. Once net earnings from self-employment pass a small threshold the IRS sets, you also owe self-employment tax of 15.3 percent on 92.35 percent of the net, roughly 14.1 percent of profit, on top of income tax.

The trap is the bracket. Side income lands on top of your W-2 wages, so all of it is taxed at your highest rate. A tech in the 12 percent federal bracket pays about 14.1 percent self-employment tax plus 12 percent federal income tax on side profit, minus a small offset for deducting half the self-employment tax, plus state income tax if your state has one. A common planning figure is to set aside a quarter to a third of side profit. See related: Going 1099: The Tax Math a Tech Misses, which owns the self-employment arithmetic.

Paying it during the year. You can make quarterly estimated payments, or you can raise the withholding at your day job by filing a new Form W-4 with an extra amount per check. Withholding counts as paid evenly through the year no matter when it happened, so bumping it in October still protects you from an underpayment penalty for the whole year. See related: Filing Quarterly Estimated Taxes on Side Income.

Keep records as if you will be asked. A separate account for side money, a receipt for every part, a mileage log for side trips. Without them your Schedule C has no expenses on it and you pay tax on the gross.

Risk 2: nobody's insurance covers you by default

On the clock, the shop's general liability policy and its workers' comp stand behind you. On Saturday, neither does, and the policies you already own were written to exclude exactly this.

• The shop's liability policy. Covers the business's operations. Your side job is not one of them.
• Workers' comp. Covers injuries arising out of your employment. Fall off a neighbor's roof on your own time and it is not a comp claim. Your health insurance may pay medical bills, but nothing replaces lost wages unless you carry disability coverage. See related: Disability Insurance for People Who Work With Their Hands.
• Homeowners or renters insurance. Personal policies commonly exclude business activities. Tools you use for paid work may be excluded or sharply limited.
• Personal auto. Many personal policies exclude or limit business use. Ask your agent before driving a loaded truck to paid jobs.

The exposure that surprises techs is completed operations: the claim that arrives months after the job. A flare fitting you made up on a gas connector, a water heater relief line you ran, a breaker you swapped. If it fails in March and causes a fire or a flooded basement, the homeowner's insurer pays the homeowner and then comes after whoever did the work. That is subrogation, and it targets you personally.

The fix is a general liability policy in your own name, which for occasional side work is commonly sold as a small-contractor policy. Ask the agent three questions: does it include completed operations, does it exclude any work you actually do (gas, roofing and electrical are common exclusions), and does it require you to be licensed for the work to be covered. A policy that excludes unlicensed work covers nothing if you are unlicensed.

Risk 3: the license you have may not cover the job

A trade license that lets you work for a licensed contractor often does not let you contract on your own. A journeyman electrician or plumber typically needs a master or contractor license, and sometimes a business registration, to take money directly from a homeowner. HVAC, gas and electrical work usually need a permit pulled by a licensed contractor, and a homeowner permit is for the homeowner's own hands, not yours.

States differ widely, so check your own:

• California requires a contractor license for any job over a small dollar ceiling (the "minor work" exemption, which was raised in 2025), and an unlicensed contractor generally cannot sue to collect payment and may have to give back what was paid (Business and Professions Code 7031).
• Some states license only certain trades at the state level and leave the rest to cities or counties, so the answer can change at a county line.
• Federal certifications are personal, not a license to contract. An EPA Section 608 card lets you handle refrigerant; it does not authorize you to sell HVAC work.

Unlicensed or unpermitted work also gives your liability insurer a reason to deny the claim and gives a homeowner's insurer a reason to deny theirs, which brings the subrogation claim straight back to you. Before your first paid side job in a licensed trade, call your state licensing board and ask: "Can a [your license level] do [this job] for pay, directly for a homeowner, without a contractor license?"

Risk 4: your employer's rules, and the customer list

This is the one that costs people their job.

The handbook. Many shops have a moonlighting policy. In most states employment is at will, so an employer can generally fire you for side work that breaks its policy. A few states, including California, New York and Colorado, protect certain lawful off-duty conduct to varying degrees, and those statutes carve out activity that competes with or conflicts with the employer's business. Doing the same trade in the same service area is the textbook conflict.

What you signed. Read your offer letter and any agreement for three clauses:

• Non-compete. Bars you from working in the trade nearby for a period after you leave. Enforceability is state law: California voids most of them (Business and Professions Code 16600), Minnesota banned new ones in 2023, and several states bar them for workers under an income threshold. The FTC's attempted nationwide ban was set aside in court and did not take effect.
• Non-solicitation. Bars you from soliciting the shop's customers or employees. These are enforced more often than non-competes in many states, and courts in California treat customer non-solicits skeptically too.
• Confidentiality. Covers customer lists, pricing and service history.

The duty you owe without signing anything. While you are employed, the common law in most states gives your employer a duty of loyalty: you may not compete with them or divert their customers. Using their dispatch history to find work, their parts from the truck, or their time to do your own jobs can be theft or a breach of that duty whatever your paperwork says.

So the bright line is simple: not the shop's customers, not the shop's parts, truck, phone or time, and not during your hours. When a shop customer asks, say no in a way that keeps you and the shop clean:

CUSTOMER: Any chance you could swing by Saturday and
          do the thermostat yourself? Cash, cheaper
          for both of us.
TECH:     I can't do work on the side for the shop's
          customers. That's a firm rule, and it's a
          fair one. What I can do is get it on the
          schedule this week and put a note on it that
          you'd like me back.
CUSTOMER: Even if they never find out?
TECH:     If something went wrong later, you'd have no
          warranty and I'd have no insurance on it.
          Let me call the office right now.

Then tell your manager the customer asked. It costs nothing and it is your record if the customer later claims you offered.

The worked example: one season of weekend jobs

Say a residential plumbing tech does eight weekend water heater replacements for friends and neighbors over a summer, none of them shop customers. Each takes about 5 hours including the haul-away. Price each job at "P" and the water heater, fittings and dump fee at about 55 percent of P, so profit per job is 45 percent of P. Across eight jobs that is 3.6P of profit for 40 hours of weekend work.

Tax. At roughly 14.1 percent self-employment tax, 12 percent federal income tax and a 5 percent state rate, with a small offset for half the SE tax, call it about 30 percent of profit: about 1.08P, or 30 percent of the 3.6P. Real take-home is about 2.52P for 40 hours.

Insurance. A small-contractor liability policy with completed operations might run a meaningful slice of a season's profit for someone doing this little volume; say 0.5P. That leaves about 2.0P. If the policy cost more than the profit, the season was never worth doing insured, and doing it uninsured is betting the 2.0P against a claim that can be many times the job.

License. In this tech's state, water heater replacement requires a plumbing permit pulled by a licensed contractor. The tech holds a journeyman license only. Every one of the eight jobs was unpermitted contracting, which can void the liability policy he just bought and, in states like California, let a customer demand the payment back.

What changes the answer. If he holds a master or contractor license, pulls permits and carries the policy, the season nets about 2.0P for 40 hours, minus permit fees, and is a legitimate small business. If he does the same eight jobs without the license, the tax and insurance math is the same and the legal exposure is not, which is why the license question comes before the price.

Where to stop and get help

• Before signing an agreement with a non-compete or non-solicit, or if you get a letter from your employer's lawyer: an employment attorney in your state, with the signed agreement, your offer letter and the handbook section.
• Before your first licensed-trade side job: your state contractor licensing board.
• Before buying insurance: an independent agent who writes contractor policies, with a list of the exact work you do.
• At tax time if you have more than a few jobs: a preparer who files Schedule C returns for tradespeople.

References

• IRS Publication 334, Tax Guide for Small Business, and Schedule SE instructions
• IRS Form W-4 and Form 1040-ES instructions (withholding versus estimated tax)
• California Business and Professions Code sections 7031 and 16600
• Your state contractor licensing board and your employer's handbook
• See related: Going 1099: The Tax Math a Tech Misses, Filing Quarterly Estimated Taxes on Side Income, Disability Insurance for People Who Work With Their Hands