Tax Advice for Gig Workers
You might think that gig work is a way to avoid paying taxes on money you receive as income. This is a common misconception. While working as a driver for a ride-sharing business or offering your house as a short-term rental are jobs that do not come with the same income information as employment positions, you do not get to escape taxes when you perform gig work.
Do gig workers have to pay taxes?
As someone who holds one of these types of jobs, you are part of the gig work economy. As such, you can consider yourself a gig worker. Most of the time, gig workers will only receive a Form 1099-K, Payment Card and Third-Party Network Transactions, if their income from a particular job exceeds $600.
However, regardless of how much you earn as a gig worker, you are responsible for keeping track of the payments you receive from those you work for — whether that is via credit card, cash, property, goods or virtual currency. You must report all the money you receive as part of your tax return. Similarly, the money you earn as a gig worker is taxable regardless of whether you are given a Form 1099-MISC, a W-2 or any other income-related statement.
What if you are self-employed?
If you are self-employed, you should make quarterly tax payments throughout the year. You’ll also need to cover your Social Security and Medicare tax responsibilities.
How do you determine your job classification?
It’s important that you make sure you are accurately being classified as a gig worker while providing gig economy services. There’s a chance that you will be classified as an independent contractor. This is often the case in instances where workers are matched with customers via digital platforms.
Take a moment to thoroughly review the worker classification information on the official IRS website. This will help you determine the right classification status for you — whether that’s as an independent contractor or an employee. If you’re classified as an employee, then your employer will withhold taxes from your pay on your behalf. This money will be used to cover income taxes come tax season.
The IRS urges you to submit a new W-4 to your employer in order to ensure that a greater percentage of money is withheld from your paycheck for income tax purposes. This is especially important if you have other jobs where you work as an employee. Also, be sure to make your quarterly estimated tax payments. This will help you pay your taxes — namely the self-employment tax — throughout the year.
What is the main benefit of being classified as an independent contractor?
As an independent contractor, you can deduct business expenses as part of Schedule C of your income tax return. Upholding consistent and accurate record-keeping is paramount when it comes to deducting business expenses.
That way, you can successfully navigate the tax rules that are relevant to you. So make sure you keep records of your business expenses to avoid making mistakes when reporting your income from gig work.
If you want to look into whether you should make additional tax payments, you can use the IRS Withholding Estimator on the official IRS website. This can help you avoid situations where an unexpected tax bill pops up or you receive an underpayment penalty when filing your tax return.
For anyone who is unsure about job classification, obtain Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, to determine whether you are an employee or a gig worker. Form SS-8 can be found on the official IRS website.
