Yes. In the United States, failing to report and pay taxes on any income—including income from designing websites—can be considered tax evasion, which is illegal. Any individual or business earning income is generally required to report that income to the IRS (and often to state revenue agencies) and pay the appropriate taxes.
Below, we’ll go into more detail about why website design income is taxable and the legal requirements for compliance.
1. Website Design Income Is Taxable
Self-Employment Income
Most independent website designers are treated as self-employed under U.S. tax laws, even if they do not have a formal business entity. Self-employed individuals typically report their income on:
- Form 1040, Schedule C (Profit or Loss From Business) for sole proprietors.
- Schedule SE (Self-Employment Tax) to figure Social Security and Medicare taxes due on business profits.
Any compensation received for web design—be it hourly pay, flat fees, or project-based pay—is taxable income. Failing to report that income is a violation of federal and state tax laws.
Authoritative Source:
2. Legal Obligation to Pay Taxes
If you earn above a certain threshold (generally \$400 net income from self-employment), you are required to file a tax return and pay any taxes due, which include:
- Federal Income Tax – Based on your total taxable income (from all sources).
- Self-Employment Tax – Covers Social Security and Medicare contributions.
- State and Local Taxes – Depending on where you live, you may also owe additional income tax, gross receipts tax, or other business taxes.
Failing to report or pay these taxes can result in penalties, interest, and in severe cases, criminal charges (tax evasion).
Authoritative Source:
3. Potential Consequences of Not Paying Taxes
- Penalties and Interest: If you file late or underpay, the IRS may assess late-filing penalties, late-payment penalties, and interest on the tax amount owed.
- Tax Liens or Levies: Failure to resolve unpaid taxes can lead to federal tax liens on your property or levies on bank accounts and wages.
- Criminal Charges: Intentionally concealing income can escalate to criminal charges of tax fraud or evasion.
Authoritative Source:
4. Proper Recordkeeping and Compliance
- Maintain Accurate Books
- Keep records of all income (invoices, PayPal or Stripe statements, bank statements).
- Track business expenses (e.g., software, hosting, domain costs, advertising), as they may be deductible.
- Set Aside Money for Taxes
- Many self-employed individuals make quarterly estimated tax payments to avoid large balances due at year-end and potential underpayment penalties.
- Consult Tax Professionals
- If you’re unsure about your obligations, consult a CPA or tax attorney for guidance.
Authoritative Source:
5. State and Local Considerations
- Sales Tax: Some states require service providers or certain types of digital work to collect sales tax. Most states do not tax pure services like website design, but you must check your specific state’s laws.
- Business Licenses: Depending on local regulations, you may also need a city, county, or state business license for providing web design services.
Authoritative Source:
- Your State’s Department of Revenue
- Local City or County Business Office Websites
Key Takeaways
- All Income is Reportable: Income from website design is taxable; not reporting it is illegal.
- Self-Employment Taxes Apply: You’ll likely owe self-employment tax in addition to federal (and possible state) income taxes.
- Penalties Can be Severe: If you do not pay taxes, you risk penalties, interest, or even criminal charges for tax evasion.
- Stay Organized: Proper recordkeeping and filing help you stay compliant and maximize legitimate deductions.
- Seek Professional Help: When in doubt, consult a tax professional or CPA.
Ultimately, yes, it is illegal to design websites (or provide any service) and fail to report and pay taxes on the income earned. To avoid legal and financial consequences, make sure you comply with IRS regulations and any applicable state and local tax requirements.
Disclaimer: The information provided is for general informational purposes and should not be considered legal or tax advice. Tax laws are complex and subject to change. For advice specific to your situation, consult a qualified tax professional or refer to official IRS resources.