IRS Tax Tip 2023-85, June 27, 2023
The gig economy – also called sharing economy or access economy – is a popular way for people to earn income by providing on-demand work, goods or services. Some people take up gig work on a part-time basis, and for others the job is done full-time. Income from gig work – such as 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.
Gig work is taxable
- Earnings from gig economy work are taxable regardless of whether an individual receives information returns. Due to reporting requirementsPDF, gig economy workers may get a Form 1099-K if their income exceeds $600.
- Earnings from gig work include payments by credit card, cash, property, goods or virtual currency.
- Gig workers may be required to make quarterly estimated tax payments.
- If gig workers are self-employed, they must pay all Social Security and Medicare taxes on their income from the gig activity.
Proper worker classification
It’s important that the taxpayer is correctly classified while they provide gig economy services. Gig workers may be classified as independent contractors by digital platforms that match workers’ services with customer needs.
- This means the business, or the platform, must determine whether the individual providing the services is an employee or independent contractor.
- Taxpayers should review the worker classification information 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’s important for taxpayers to keep records of their business expenses.
Paying the right amount of taxes throughout the year
- Good recordkeeping is important to navigate tax rules successfully and avoid mistakes when doing gig work.
- 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:
- If they have another job as an employee, submit a new Form W-4 to their employer to have more income taxes withheld from their paycheck.
- Make quarterly estimated tax payments to help pay their income taxes throughout the year, including self-employment tax.
- If you have more questions about your gigs or other small business issues then call James D Jones @ 410-457-7331 for answers!