Whether it’s a full-time job or just a side hustle, taxpayers must report gig economy earnings on their tax return. Understanding how gig work can affect taxes may sound complicated but, it doesn’t have to be.
Here are some things gig workers should keep in mind.
Gig work is taxable:
- Earnings from gig economy work is taxable, regardless of whether an individual receives information returns. The reporting requirement PDF for issuance of Form 1099-K changed for payments received in 2022 to totals exceeding $600, regardless of the total number of transactions. This means some gig workers will now receive an information return. This is true even if the work is full-time, part-time or if an individual is paid in cash.
- Gig workers may also be required to make quarterly estimated income tax payments and pay their share of Social Security and Medicare taxes.
Check worker classification:
While providing gig economy services, it is important that the taxpayer is correctly classified.
- This means the business, or the platform, must determine whether the individual providing the services is an employee or independent contractor.
- Taxpayers can use the worker classification page on IRS.gov to see how they are classified.
- Independent contractors may be able to deduct business expenses, depending on tax limits and rules. It is important for taxpayers to keep records of their business expenses.
Pay the right amount of taxes throughout the year:
- An employer typically withholds income taxes from their employees’ pay to help cover income taxes their employees owe.
- Gig economy workers who are not considered employees have two ways to cover their income taxes:
- Submit a new From W-4 to their employer to have more income taxes withheld from their paycheck, if they have another job as an employee.
- Make quarterly estimated tax payments to help pay their income taxes throughout the year, including self-employment tax.
If you have any questions, reach out to the Crosslin tax team at (615) 320-5500. We are here to help!