“Gig Economy” is in the news all the time these days. It’s also known as the sharing, on-demand or access economy. What does that term mean? The Gig Economy is a labor market that is made up of short-term contracts or freelance work as opposed to a traditional job as an employee. The Gig Economy can benefit workers and businesses by making work more adaptable to the needs of the moment and demand for flexible lifestyles. At the same time, the gig economy can come with significant downside risk, mostly for workers.
On an interesting side note, the term “Gig Economy” derives from a term used in the 1920s by jazz musicians as a shortened version of the word “engagement.” It now refers to any aspect of musical performance. More broadly, “gigging” means having paid work, often as a freelancer.
In effect, workers in a Gig Economy are more like entrepreneurs than traditional workers. While this may mean greater freedom of choice for the individual worker, it also means more responsibility. The security of a steady job with regular pay, benefits, and a daily routine is rapidly disappearing. Workers must take a much larger share of the economic responsibility for taxes, insurance and other financial obligations that employers usually take care of.
When it comes to taxes, there are a lot of rules and quite a bit to know. How can you keep up with it all? The Internal Revenue Service has created a new Gig Economy Tax Center on its website to help Gig Economy workers meet their tax obligations by getting the information to figure it out, all in one place. Whether renting out a spare bedroom or providing car rides, workers need to understand the rules so they can stay compliant with their taxes and avoid expensive surprises at tax filing time.
Educating Gig Economy workers about their tax obligations is vital because many don’t receive W-2s, 1099s or other information returns for their work in the Gig Economy. However, income from these sources is generally taxable, regardless of whether workers receive information returns or not. Workers who are gigging also need to know about the business expenses they can deduct to reduce their taxable business income.
The IRS’ Gig Economy Tax Center is designed to make it easier for taxpayers to find information about a variety of topics including filing requirements, quarterly estimated income tax payments, and deductible business expenses. But the information can still be daunting. Get help from a qualified tax professional if you don’t feel comfortable navigating it yourself. The IRS can help with that, too. https://www.irs.gov/tax-professionals/choosing-a-tax-professional