This is a BattlePlan Virtual digital content, research, informational, taxation primer. First shared via Terri Bell and Associates, IN THE BLACK Newsletter, Volume 1, Issue 7.
Gig Economy Definition:
A gig economy is a labor market that relies on temporary and part-time positions filled by independent contractors and entrepreneurial freelancers rather than full-time permanent employees.
Gig economy income is taxable
Taxpayers must report all income on their tax return [unless excluded by law], whether or not they receive a Form 1099.
Individuals involved in the gig economy may also be required to make quarterly, estimated tax payments to pay income tax and self-employment tax, which includes Social Security and Medicare taxes. The last estimated tax payment for 2022 is due January 17, 2023.
Gig economy workers who perform services, such as driving a car for booked rides, running errands and other on demand work, must be correctly classified. Classification helps the taxpayer determine how to properly report their income.
If they are an independent contractor, income is reported on a Schedule C, Form 1040, Profit or Loss from Business [Sole Proprietorship].
· As an employee, wage income is reported via the Form W-2, Wage and Tax Statement.
The business or the platform determines whether the individual providing the services is an employee or independent contractor. The business owners can use the worker classification page on IRS.gov for guidance regarding properly classifying employees and independent contractors… or… consult their Tax Accountant.
Expenses related to gig economy income may be deductible
Individuals involved in the gig economy may be able to deduct expenses related to their gig income, depending on tax limits and rules.
Taxpayers may be able to lower the amount of tax they owe by deducting certain expenses.
It is important for taxpayers to keep accurate 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 taxes their employees owe.
Individuals involved in the gig economy have two ways to cover their taxes due:
If they have another job where they are considered an employee, they can submit a new Form W-4, Employee’s Withholding Certificate to their employer to have more taxes withheld from their paycheck to cover the tax owed from their gig economy activity.
They can make quarterly estimated tax payments throughout the year. See the link below.
https://www.irs.gov/newsroom/tax-tips-for-gig-economy-entrepreneurs-and-workers
It’s projected that 85.6 million people will be freelancing in the United States by 2027.
This post is intended to be JIT [Just In Time], for “Giggers”, and all interested filers, as this year’s Tax Return Filing Season began on January 23, 2023.
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