Gig economy work can affect a taxpayer’s bottom line
The IRS explains how the Gig economy- (also called sharing economy or access economy—is activity where people earn income providing on-demand work, services or goods. Often, it’s through a digital platform like an app or website..) is taxed, so timely and relevant in today’s changing world.
Taxpayers who work in the gig economy need to understand how their work affects their taxes. A little pre-planning can help make sure gig economy workers are prepared when it’s time to file their tax return.
First things first, here’s a quick overview of the gig economy:
The gig economy is also referred to as the on-demand, sharing or access economy. People involved in the gig economy earn income as a freelancer, independent worker or employee. They use technology to provide goods or services. This includes things like renting out a home or spare bedroom and providing car rides.
Here are some things taxpayers should know about the gig economy and taxes:
- Money earned through this work is usually taxable.
- There are tax implications for both the company providing the platform and the individual performing the services.
- This income is usually taxable even if the:
o Taxpayer providing the service doesn’t receive an
information return, like a Form 1099-MISC, Form
1099-K, or Form W-2.
o Activity is only part-time or side work.
o Taxpayer is paid in cash.
- People working in the gig economy are generally required to pay:
o Income taxes.
o Federal Insurance Contribution Act or Self-
employment Contribution Act tax.
o Additional Medicare taxes.
- Independent contractors may be able to deduct business expenses. These taxpayers should double check the rules around deducting expenses related to use of things like their car or house. They should remember to keep records of their business expenses.
- Special rules usually apply to rental property also used as a residence during the tax year. Taxpayers should remember that rental income is generally fully taxable.
- Workers who do not have taxes withheld from their pay have two ways to pay their taxes in advance. Here are these two options:
o Gig economy workers who have another job where
their employer withholds taxes from their paycheck
can fill out and submit a new Form W-4. The
employee does this to request that the other
employer withholds additional taxes from their
paycheck. This additional withholding can help cover
the taxes owed from their gig economy work.
o The gig economy worker can make quarterly
estimated tax payments. They do this to pay their
taxes and any self-employment taxes owed
throughout the year.