Yes, mystery shoppers pay taxes like everyone else! When mystery shopping, you will most often work as an independent contractor. That means that the companies paying you don’t withhold income taxes, Social Security taxes or Medicare taxes. You are responsible for making sure your taxes are paid. In general, the fees you receive for mystery shopping are taxable as ordinary income, and are subject to federal income taxes, state and local income taxes, Social Security taxes, and Medicare taxes.
According to Tax Shark, the good news is that when you are a contractor you are treated as a small business and you can deduct certain expenses. These may include postage, mileage and car expenses, travel, office equipment, computer and Internet fees, and perhaps even some purchases made while you are mystery shopping. You might qualify to deduct some of your housing expenses if you have a home office.