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Gig Economy Income Can Affect a Taxpayer’s Bottom Line

From Uber to AirBnB, Lyft to TaskRabbit, more Americans are getting involved in the gig economy. Whether their involvement is just a side hustle or the main event, taxpayers can find income earned in this way can affect their tax returns—and it’s not always in a positive way.

The Internal Revenue Service says a little pre-planning can help gig economy workers be ready when it’s time to file their taxes.

Defining the Gig Economy

The gig economy is known by a few different names; it has also been called the on-demand economy, the sharing economy or the access economy. People involved in the gig economy may 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.

There are a few 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 their business expenses, but they should double-check IRS rules when it comes to deducting expenses relating to use of things like their car or home. Remember to always keep records of business expenses.

Special rules apply to rental property when it’s also used as a residence during the tax year. Taxpayers should remember that rental income is generally fully taxable.

Workers who don’t have taxes withheld from their side hustle pay have two choices to pay their taxes in advance. Gig economy workers who have another job where the employer withholds taxes from their paycheck can fill out and submit a new Form W-4. This is done to request that the withholding employer sets aside an additional amount in order to cover taxes owed on the gig economy income.

Another way to stay on the good side of the IRS is to make quarterly estimated tax payments. This way, the taxpayer can pay taxes and any self-employment taxes owed throughout the year.

Story provided by TaxingSubjects.com