Few Things Gig Economy Workers Should Know About Their Tax Responsibilities
Many people take up gig work on a part-time or full-time basis, often through a digital platform like an app or website. Gig work, such driving a car for booked rides, selling goods online, renting out property, or providing other on-demand work, is taxable and must be reported as income on the worker’s tax return.
Here are some things gig workers should know to stay on top of their tax responsibilities:
Gig work is taxable:
Earnings from gig economy work is taxable, regardless of whether an individual receives information returns. The reporting requirement 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 or part-time.
Gig workers may be required to make quarterly estimated tax payments.
If they are self-employed, gig workers must pay all their Social Security and Medicare taxes on their income from the gig activity
Proper 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 should be 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.
Paying 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 aren’t considered employees have two ways to cover their income taxes:
Submit a new Form 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.