How to Pay Taxes on Affiliate Marketing

Affiliate marketing has become a prevalent method for individuals to generate income online, offering flexibility and reach. Like all earnings, income derived from affiliate marketing is subject to taxation. Understanding tax obligations is important for compliance, involving proper reporting and payment.

Understanding Your Affiliate Marketing Income

Income earned through affiliate marketing is generally classified as self-employment income, rather than traditional wages. This distinction is important because, unlike employment income, tax withholding is not typically performed by the payers of affiliate commissions. Individuals earning affiliate income are responsible for managing their own tax contributions throughout the year.

Affiliate networks and direct advertisers often issue Form 1099-NEC (Nonemployee Compensation) to affiliate marketers. For tax year 2025, the reporting threshold for Form 1099-NEC is $600 or more paid for services performed. Even if an individual earns less than $600 from a single payer and does not receive a 1099-NEC, all income received through affiliate marketing activities must still be reported. Thorough record-keeping of all income is fundamental for accurate tax reporting.

Identifying Deductible Business Expenses

Affiliate marketers can reduce their taxable income by deducting certain business expenses. To qualify for a deduction, an expense must be both “ordinary and necessary” for the operation of the business. An ordinary expense is one that is common and accepted within the affiliate marketing industry, while a necessary expense is considered helpful and appropriate for the business.

Examples of common deductible expenses include:
Website hosting and domain registration fees.
Software subscriptions for tools like email marketing, analytics, or search engine optimization.
Advertising and promotional costs, such as paid advertisements and content creation.
Professional development and education directly related to enhancing affiliate marketing skills.
Business-related travel, like attending conferences or meeting partners.
Fees for business bank accounts.

The home office deduction is available if a specific area of the home is used exclusively and regularly as the principal place of business. Taxpayers can choose between a simplified method ($5 per square foot for up to 300 square feet) or the actual expense method (proportionate share of expenses like mortgage interest, utilities, and insurance). Accurate record-keeping, including receipts, is important for substantiating all claimed deductions.

Preparing for Tax Reporting

Accurate record-keeping of both income and expenses forms the foundation for tax reporting. This organized financial data is then used to complete specific tax forms. Affiliate marketers operating as sole proprietors typically report their business income and expenses on Schedule C (Form 1040), titled “Profit or Loss from Business.”

Schedule C is used to detail gross receipts or sales, and then subtract all qualifying business expenses. If applicable, the cost of goods sold is also accounted for in this section. The result of these calculations is the net profit or loss from the affiliate marketing business, which is then transferred to the individual’s main tax return, Form 1040. This net profit is the basis for calculating both income tax and self-employment tax.

In addition to Schedule C, self-employed individuals must also complete Schedule SE (Form 1040), “Self-Employment Tax.” This form calculates the Social Security and Medicare taxes that self-employed individuals are responsible for paying. The net profit from Schedule C is used as the starting point for this calculation, encompassing both the employer and employee portions of these taxes.

Meeting Your Tax Obligations

Self-employed individuals, including affiliate marketers, are generally required to pay estimated taxes throughout the year because no employer withholds taxes from their earnings. These estimated tax payments are necessary if an individual expects to owe $1,000 or more in federal income tax for the year. Payments are made in quarterly installments, ensuring that tax obligations are met as income is earned.

Calculating Estimated Taxes

To calculate estimated tax payments, affiliate marketers use their projected net profit from their business activities, considering anticipated income and expenses. The IRS provides Form 1040-ES, Estimated Tax for Individuals, which includes a worksheet to assist in this calculation. The general due dates for these quarterly payments are April 15, June 15, September 15, and January 15 of the following year, with adjustments if a date falls on a weekend or holiday.

Making Payments and Filing Annually

Payments can be made electronically through various methods, including IRS Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or the IRS2Go app. Payments can also be mailed with a payment voucher from Form 1040-ES. At the close of the tax year, the completed Schedule C and Schedule SE, along with other relevant forms, are submitted as part of the annual income tax return, Form 1040. The annual return can be filed using tax software, through a tax professional, or by e-filing directly with the IRS. Any remaining tax balance due is paid at the time of filing, or a refund is issued if an overpayment occurred throughout the year.