Do you work in the Gig Economy? Here are a few things you should know about your tax responsibilities.
The Internal Revenue Service (IRS) would like gig economy workers to know that money that they earned is taxable; just like any other job. As a result, you should keep track of the money that you make and report it on your tax return.
You may fall under one ore more IRS guidance depending on your role in the gig economy:
You are an employee
In this cas, your employer usually :
- Withholds tax from your pay to help cover taxes you owe.
- Provides copy of an earning statement or paystub.
- Provides copy of a w-2 at the end of the year to help you prepare and file your tax return.
You are an independent contractor
You must keep track of the payments that you received from your customers:
- If you accept payment by credit card, through Stripe, PayPal, etc.: your merchant processor should provide Form 1099-K in January of the following year if the total payment amount that they processed for you exceeds $600. Use the information reported on Form 1099-K along with your other documents and books and records to calculate your gross receipts. Report your gross receipt on your income tax return.
The amount reported on the 1099-K may be higher than the amount that has been deposited into your bank account. This is because the 1099-K reports gross amounts including the credit card company’s fee, the Stripe, PayPal and other merchant processors’ fees, the refunds that you processed, etc.
- If you were paid by cheque, wire transfer, in cash at least $600 in total by a company: you should receive Form 1099-NEC.
- You should consider making quarterly estimated tax payments to help pay your income tax and your self-employment tax throughout the year.
- You may ask your employer to withhold extra taxes from your salary to cover the taxes on the income from your freelance gig. This assumes you’re working as an employee in addition to your freelance gig.
You are a marketplace facilitator
There are several things that you should keep in mind:
- You should report your commissions.
- You should receive a Form 1099-K from the merchant that processes the payments on your platform. Use the information in Box 1 of Form 1099-K along with your books and records to prepare and file your tax return.
- You should consider making quarterly estimated tax payments.
Case study : you’re a freelance social media marketer. You sign up on a digital platform, set up your Gig and offer your expertise to businesses that might be interested. You received orders, use the digital platform’s system to discuss details with customers, provide the service and get paid.
The digital platform should collect your information to report to the IRS payments that they transferred to you in a calendar year. This information is reported on Form 1099-NEC. However, the reporting is required only if the digital platform transferred to you at least $600 in total in a calendar year. The digital platform should receive Form 1099-K from its merchant processor.
Aimlon CPA P.C. tax professionals can help you year-round:
- Account for your business transactions.
- Get your books and records in order.
- Plan your taxes.
- Determine whether you should be making quarterly estimated tax payments.
- Estimate the amount of your quarterly estimated tax payments.
- Prepare and file your tax return.
A gig economy is a free market system where independent workers of the service industry offer to perform work for compensation on a freelance or short-term basis. This includes driving a car for booked rides or deliveries, renting out all or part of a real estate property, providing creative, knowledge intensive or professional services. Digital platforms match workers’ services or goods with customers’ needs via apps or websites.
Gig economy workers “cultivate (…) connections to place, routines, purpose, and people that help them endure the ups and downs of their work and gain energy and inspiration from their freedom.” (Harvard Business Review). The gig economy employs an estimated 150 million freelancers in North America and in Western Europe.