If you are a part of the “gig economy” — also known as the “access economy” or “sharing economy” — it’s important to know your tax obligations as they are markedly different from the obligations of salary and wage workers.
Ahead, we’ll explain everything you need to know, including how to track your income, how to make quarterly payments, and how to file your taxes each year.
What Is the “Gig Economy”?
According to the Internal Revenue Service (IRS), “The gig 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.”
So, for example, if you grocery shop for Shipt users, rent out your spare bedroom through AirBnB, babysit with Care.com, or drive your car for Uber, you’re part of the gig economy. There are a host of other examples of “gig work” as well — all of which qualify as taxable income. However, because taxes aren’t taken out automatically, it’s up to you to claim your earned income and pay the required taxes.
Remember that as a gig worker, you are considered an “independent contractor.” This means that you typically don’t receive the same benefits as a full-time employee. Saving for retirement, purchasing health insurance, and keeping up with your own training are all your responsibilities.
Your Tax Responsibilities as a Gig Worker
When it comes to your tax responsibilities as a gig worker whether gig work is your main source of income or an extra job on top of salary or wage work, here’s what you should keep in mind:
1. When you do your taxes, you must report your income using Schedule C. In some cases, the platform you work for (for example, Uber) will provide you with a 1099-Misc. Even if the places you work for do not provide you with a 1099 you must still report all the income you received.
2. Throughout the year prior to filing your taxes, you will likely have to make quarterly payments. This means that every three months, you’ll need to make a payment of income tax to the IRS. The amount will be an estimate of how much taxes you’ll be paying in full that year, divided by four. Payments are due:
- April 15th
- June 15th
- September 15th
- January 15th
Note: In 2020, these deadline may be adjusted.
3. You may be able to deduct business expenses. For instance, if you purchase office supplies for a gig job you do from a home office, you may be able to deduct these supplies and your home office. This process involves many working parts and can be particularly confusing.
4. It is vital to keep accurate records of your gig work in the event that you are audited by the IRS. All hours logged, invoices sent, payments received, associated expenses, receipts, and more should be carefully documented.
What the IRS Has to Say
The IRS has been tracking gig work and recently published their statistical findings in the report, “Is Gig Work Replacing Traditional Employment?” In the report, from 2000 to 2016, non-traditional employment was found to have grown by 1.9 percent. Of this growth, from 2013 to 2016, it was estimated that over half was attributable to online platform gig work.
Still, it’s not as if traditional work is being totally replaced by gig work. Most of those who engage in this type of non-traditional work are actually working these jobs as side gigs. Additionally, much of the gig work is being carried out by those who have also been through a recent period of unemployment. Given the current economic environment, it’s possible we’ll see more people work with gig workers.
Need Help Filing Your Taxes as a Gig Worker?
If you are a gig worker, it’s important that you file your taxes completely and responsibly every year. As a full-service accounting firm, Baldwin CPAs can provide you with all the qualified services you require.
To get help filing your taxes as a gig worker, contact our office today.