If I receive $10k in unreported income from someone, how does that work tax-wise?

You're right to be concerned. All income is taxable regardless of whether you receive a 1099 or W-2. The IRS requires you to report ALL income from whatever source derived, even if it's paid in cash with no documentation. If you accept this money, you would need to report it as "Other Income" on your tax return (typically on Schedule C if it's self-employment/consulting income). You would owe both income tax and self-employment tax (around 15.3%) on this amount. As for "how would they know" - the IRS has many ways to detect unreported income. Bank deposits that don't match reported income, lifestyle that doesn't match reported income, business expense deductions without corresponding income, or even the person paying you might eventually deduct it as a business expense, creating a mismatch. Plus, if the relationship sours, the other party could report you. Penalties for not reporting income include accuracy-related penalties (20% of the unpaid tax), failure-to-pay penalties, interest charges, and in cases of willful evasion, potential criminal charges. It's really not worth the risk for $10k.

I went through something similar last year and used https://taxr.ai to help figure out my options. I was doing side gigs getting paid in cash and Venmo, and I was confused about what needed to be reported. The site analyzed my situation and gave me a clear breakdown of my tax obligations. It showed me that even without a 1099, I still needed to report the income on Schedule C as self-employment income. But it also helped identify deductions I could take to offset some of that income - like my home office, portion of cell phone used for business, mileage, etc. The tool even explained the difference between hobby income vs business income which mattered for my situation.

I tried taxr.ai after seeing the recommendation here. Honestly, it was exactly what I needed for my situation with unreported income. It helped me understand that I could actually classify my side gig as a legitimate business and take advantage of deductions I didn't know I qualified for. The peace of mind was worth it - knowing I'm reporting everything legally but also not overpaying by missing valid deductions. It showed me how to track cash payments properly moving forward and even gave me a system for keeping records in case of an audit. Definitely worth checking out if you're in a similar situation.

I had a similar issue last year with about $15k of consulting work. After three failed attempts to call the IRS with questions (kept getting disconnected after waiting 1+ hours), I found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c. They got me connected to an actual IRS agent in about 20 minutes. The agent explained exactly how to report the income (Schedule C) and what documentation I needed to keep even without a 1099. They also told me about quarterly estimated tax payments I should've been making (which I had no idea about). Without that call I would've been hit with underpayment penalties. The IRS actually has a specific form (Form 8919) for reporting income when you should've received a W-2 but didn't, though in my case Schedule C was the right approach.

I have to eat my words here. After my skeptical comment, I actually tried Claimyr because I had an unrelated tax issue I'd been putting off dealing with for months. It actually worked exactly as advertised. Got a call back in about 30 minutes and spoke to a real IRS agent who helped resolve my issue about some misreported income from a previous year. The agent was super helpful and didn't make me feel like I was being investigated or anything. Saved me hours of frustration and probably hundreds in potential penalties down the road. So yeah, I was wrong about this one.

Something important that nobody mentioned yet - there's a big difference between a gift and income. If it's truly a gift (given out of generosity with nothing expected in return), the person GIVING the gift might have to file a gift tax return if it's over $15,000, but YOU don't pay taxes on gifts received. But from your description, this is clearly payment for services (consulting), not a gift. So yeah, it's taxable income regardless of whether they issue a 1099 or not.

I'm going to get downvoted but whatever. The reality is tons of people get cash payments and don't report them. Cash businesses especially. Not saying it's right, just saying it happens all the time. The real risk comes from lifestyle not matching income. If you're making 30k on paper but driving a Ferrari, yeah the IRS will have questions lol. For a one-time 10k payment? The practical risk is pretty minimal if we're being honest.