We are here with some important tax-related information for taxpayers working in the gig economy. The concept of the gig economy has been catching pace since the last few years. In fact, individuals searching for an additional source of income apart from full-time is quite popular in the states.
But what most of you working in the gig economy don’t realize is that income earned from the gig economy is also taxable. Let us first understand what exactly encompasses a gig economy and learn about related tax liabilities.
What is the gig economy?
The gig economy is also famously known as the on-demand, sharing, or access economy. The individuals working in the gig economy work as freelancers, independent workers, or even as employees. A primary feature is the use of technology to provide goods and services. Few works that form a part of the gig economy sound like,
- Renting out a home
- Renting out a spare bedroom
- Renting out cars
- Working as a home tutor, etc.
Let us take a look at tax implications on the income earned from the gig economy.
Tax implications on gig economy income
The money earned by working in the gig economy is usually taxable, and the tax implication lies on both; the company hiring professionals in the gig economy and professionals rendering such services. Also, the income earned from the gig economy will be taxable even if,
- You don’t receive an information return like a Form 1099-MISC, Form 1099-K, or Form w-2.
- The work you do is only part-time or side work
- You are paid in cash for such work
Applicable taxes on gig economy income
There are three types of taxes that you would be required to pay when working in the gig economy. They are as follows,
- Income Tax
- Self-employment Contribution Act tax or the Federal Insurance Contribution Act
- Additional Medicare Taxes
Gig economy allows the deduction of business expenses
If you are an independent contractor, then you would be eligible to deduct business expenses while working in the gig economy. You shall ensure to double-check all the related rules for deducting expenses incurred on the use of your car or house for the gig economy. The most important part is keeping receipts and record of all such expenses for usage while filing tax returns.
Rental income is taxable in the gig economy
Rental income is generally fully taxable in the gig economy. Therefore, you shall keep in mind the special rules that apply to the rental property also used as a residence during the tax year.
Income tax withholdings and the gig economy
Many professionals working in the gig economy do not have tax withholdings since the work here is not as organized when compared to full-time jobs. If working in the gig economy, you do not have taxes withheld from your income then there are two ways through which you may pay your taxes in advance,
- If you have an additional job apart from the gig economy where your employer withholds taxes from your income, then you can fill the Form W-4 and request your employer to deduct extra taxes which can be used to pay the taxes on income earned from the gig economy.
- You can also consider making quarterly estimated tax payments to pay your income and other self-employment taxes in advance.
The Bottom Line
Taxpayers working in the gig economy usually find themselves unaware about these tax implications. The blog gives an overview of the applicable tax rules for income earned working in the gig economy. For a better understanding of your tax implications and how to take advantage of the deductions and credits, you can contact your MyTaxFiler expert using the contact information available on the website.