Smartphones and apps make it easier than ever for people to find freelance work, or “gigs,” through online marketplaces. Apps can make it easy to get work for pay, but gig workers may not understand all the tax obligations of the money that they earn. Most gig workers don’t realize that they will be classified as an independent contractor, responsible for taxes, insurance, and other financial obligations that employers usually take care of.
The gig economy was growing even before COVID-19; but now it’s booming because of even more gigs that are lined up via an app, or digital platform. Examples include:
- Driving a car for booked rides or deliveries, such as Uber and Uber Eats.
- Renting out property or part of it, such as on Airbnb.
- Running errands or complete tasks, such as TaskRabbit.
- Selling goods online, like on eBay.
It all sounds great. Digital platforms matching workers with customers. Instead of the customer directly paying the worker, the customer pays the platform, and the platform pays the worker. What many gig workers don’t realize is that after the work is done and they are paid, they are on their own to report income and pay income taxes.
Digital platforms are supposed to issue a year-end income report to workers (i.e., on IRS Form 1099-K or 1099-NEC/MISC). Whether they get a 1099 form or not, workers that earn income via a digital platform are required to maintain financial records and report all income on her or his income tax return, just like any other freelance worker.
Knowing about the tax obligations for gig workers is vital. Income from gig work is taxable, regardless of whether workers receive information returns or not. Gig workers also need to know about the business expenses they can deduct to reduce their taxable business income.
Keeping up with the tax rules is a growing issue as the gig economy grows. The IRS wants gig workers to be informed, so they launched a Gig Economy Tax Center to help gig workers find information about tax filing requirements, quarterly estimated income tax payments, and deductible business expenses. https://www.irs.gov/businesses/gig-economy-tax-center. They even produced a video to break it down for you – https://www.irsvideos.gov/Individual/PayingTaxes/UnderstandingTheGigEconomy.
The gig economy is growing. Gig workers need to know about tax obligations that employers usually take care of. The IRS knows that gig workers are on their own to report income and pay income taxes, so they put all the necessary information in the Gig Economy Tax Center. Check it out so you’re not surprised when you file your taxes next year.