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6 IRS Tips About the Gig Economy Taxpayers Need to Know

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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.

IRS Author: IRS 2020-75

Published: July 1, 2020
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Source: Tax Connections

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