Gig Economy Tips Taxpayers Should Remember (Tax Tip 2020-75)

  • Gig economy tax tips as the July 15 filing deadline nears:
  • Income from these sources is taxable, regardless of whether an individual receives information returns. This is true even if the work is full-time, part-time or if an individual is paid in cash.
  • Taxpayers may also be required to make quarterly estimated income tax payments and pay their share of Social Security, Medicare or Medicaid taxes.

The gig economy, also called sharing or access economy, is activity where taxpayers earn income providing on-demand work, services or goods. Often, it’s through a digital platform like an app or website. While there are many types of sharing economy businesses, ride-sharing and home rentals are two of the most popular.

Here are some things taxpayers should remember:

  • Income from these sources is taxable, regardless of whether an individual receives information returns. This is true even if the work is full-time, part-time or if an individual is paid in cash.
  • Taxpayers may also be required to make quarterly estimated income tax payments and pay their share of Social Security, Medicare or Medicaid taxes.

While providing gig economy services, it is important that the taxpayer is correctly classified.

  • This means the business or the taxpayer 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 are 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.

Since income from the gig economy is taxable, it’s important that taxpayers remember to pay the right amount of taxes throughout the year to avoid owing when they file.

  • An employer typically withholds income taxes from their employees’ pay to help cover income taxes their employees owe.
  • Gig economy workers who are not considered employees have two ways to cover their income taxes:
  1. Submit a new From W-4 to their employer to have more income taxes withheld from their paycheck, if they have another job as an employee.
  2. Make quarterly estimated tax payments to help pay their income taxes throughout the year, including self-employment tax.

The Gig Economy Tax Center on IRS.gov answers questions and helps gig economy taxpayers understand their tax responsibilities.

The tax filing deadline has been postponed to Wednesday, July 15, 2020. The IRS is processing tax returns, issuing refunds and accepting payments. Taxpayers who mailed a tax return will experience a longer wait. There is no need to mail a second tax return or call the IRS. 

As the filing deadline nears gig economy taxpayers can avoid common tax-filing errors by using the additional tips below:

  • Prepare before you start. Gather all your documents such as Forms W-2 and 1099, gather your supporting tax deductions or credits such as state tax or mortgage interest payments. Find your prior-year tax return, you may need it. Make sure you have your dependents’ Social Security numbers. Because the standard deduction has increased this year, many taxpayers may determine itemizing deductions is no longer necessary.
  • File electronically. Filing electronically reduces common tax return errors. And, taxpayers who use software benefit because it does the calculations, flags possible mistakes and prompts taxpayers for missing information.
  • Double check bank routing and account numbers. Requesting direct deposit of a federal tax refund into one, two or even three accounts is convenient and allows the taxpayer access to their money faster. Make sure the financial institution routing and account numbers entered on the return are accurate. Incorrect numbers can cause a refund to be delayed or deposited into the wrong account.
  • Find adjusted gross income. Taxpayers who changed tax software products may be asked to enter their prior-year adjusted gross income as part of the electronic signature process. Taxpayers who did not retain a copy of their prior-year tax return may have to use Get Transcript Online or Get Transcript by Mail to obtain their prior-year AGI.

More information:

Publication 5369 – Gig Economy and your taxes: things to know

Publication 1779 Independent Contractor or Employee

Is My Residential Rental Income Taxable and/or Are My Expenses Deductible?

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Filomena Mealy

Filomena is a Relationship Manager for the Tax Outreach, Partnership and Education Branch of the Internal Revenue Service's.  Her responsibilities include developing outreach partnerships with non-tax companies, organizations and associations, such as the banking industry to educate and communicate changes in tax law, policy and procedures. She has provided content and served as a contributor to various associations and online media sources.
http://IRS.GOV

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