The Gig Worker’s Guide to Taxes
The gig economy only continues to expand, and as a result, more people than ever are trying to figure out how being a gig worker affects their taxes.
If you were in a room with two of your friends, the odds say that one of you would be a gig worker. According to online job platform Zippia, as much as 36% of the U.S. workforce qualified as a gig worker in 2021, whether that’s their primary or secondary job. The year prior, gig workers contributed roughly $1.2 trillion to the U.S. economy, or roughly 5.7% of GDP.
A “gig worker,” for the record, isn’t really defined so much by the duties they perform, but the terms under which they perform them. We tend to think of gig workers as Uber drivers and freelance writers, but they span a wide range of careers — from engineers to consultants to your neighborhood handyman.
Where they differ is that, rather than being employed in a more permanent role (typically hourly or salaried under an indefinite agreement), gig workers tend to operate on a contract basis, often executing short-term jobs.
And because this type of employment is structured differently, gig workers address their taxes differently than traditional employees. Here, we’ll go over the IRS’s advice for how gig workers should prepare for and file their taxes.
Record Keeping
One of the downsides of being a gig worker is that you need to take a more active role in your taxes. For instance, the IRS says, you need to keep records of the money you receive from gig work and sales. Yes, most of the businesses that pay you should provide you with a Form 1099 reporting your income every year. But you must report all income you earn, whether you receive a Form 1099 or not.
So, keep good records.
The IRS also notes that you should save receipts of your various expenses — whether it’s your phone bill, a software subscription or pencils — as they can result in tax breaks for you.
Estimated Taxes
With a traditional job, your company does most of the legwork of paying the IRS. Federal, state and local taxes are taken out of each paycheck; you might owe a little more come the spring, or the IRS might owe you. But by April 15, you’re pretty much done with the IRS.
Not so for gig workers, who deal with taxes all year long.
Self-employed workers who primarily earn from gig work likely will have to pay quarterly estimated taxes. That means sending a check to the IRS on April 15, June 15, Sept. 15 and Jan. 15 for the first, second, third and fourth quarters of each year, respectively.
As far as forms go, you’ll likely need Form 1040-ES, though nonresident alien individuals will need Form 1040-ES (NR).
The IRS also notes that if you’re a traditional worker who does some independent contracting, you can avoid paying quarterly estimated tax by having your traditional employer withhold more tax. This Tax Withholding Estimator can help you determine what amount is right.
Getting Ready to File
Between Jan. 1 and Jan. 31, traditional employees typically receive a Form W-2 outlining their income and taxes taken out. Gig workers also receive similar documents during this time — namely Form 1099-K (Payment Card and Third-Party Network Transactions) and Form 1099-MISC (Miscellaneous Income).
These documents should be enough to tell your whole income story. But as we mentioned above, some gig employers might not send a 1099. So make sure to check your payment records throughout the year so you can accurately report all your income.
You can also deduct various expenses, from travel to office supplies and tools. You can even potentially deduct some rent and utility costs if you use part of your home for business purposes.
Filing Your Taxes
Once it comes time to file your taxes, you’ll need to fill out either Form 1040 (U.S. Individual Income Tax Return) or Form 1040-SR (U.S. Tax Return for Seniors), as well as Schedule SE (Form 1040, Self Employment Tax) and Schedule C (Form 1040, Profit or Loss from Business [Sole Proprietorship]).
From there, you can file your taxes yourself using IRS Free File or via the mail. You can also get help via the Volunteer Income Tax Assistance program or a tax professional authorized to e-file your taxes.
Own a Small Business? We Can Help With Your Taxes
If you own a small business — or if, as a gig worker, you are your own small business — give McManamon & Co. a call.
McManamon & Co. provides a wealth of services to small and mid-sized businesses, including annual tax preparation and filing. And given the added levels of complexity and involvement small businesses face in their taxes, it often makes sense to unload these responsibilities to the pros.
Let McManamon & Co. make tax time far easier on you. Call us at 440.892.8900 or contact us online today.
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