(Newswire.net — April 1, 2021) — Many Americans joined the gig economy this past year in order to make ends meet during the pandemic. This means that individuals started up or joined a side business or chose to make it their primary source of income. Optima Tax Relief helps taxpayers understand how their gig work affects their taxes and why they must report this income on their tax return.
The gig economy is also known as the on-demand, sharing, or access economy. Those who are involved in the gig economy typically earn their income as freelancers, independent workers, or employees. Gig economy workers are known to connect with their customers using online platforms to provide goods or services like renting out a home or spare bedroom and providing a delivery service.
Here is what taxpayers should know about working in a gig economy and how it can affect their taxes:
- Money earned through this work is usually taxable.
- There are tax implications for both the company providing the platform and the individual performing the services.
- This income is usually taxable even if the:
- The taxpayer providing the service does not receive an information return, like a Form 1099-NEC, Form 1099-MISC, Form 1099-K, or Form W-2.
- Activity is only part-time or side work.
- The taxpayer is paid in cash.
- People working in the gig economy are generally required to pay:
- Income taxes.
- Federal Insurance Contribution Act or Self-employment Contribution Act taxes.
- Additional Medicare taxes.
- Independent contractors may be eligible to deduct their business expenses. Individuals should first check to see the rules around deducting expenses related to their car or house and should always remember to keep a record of all their business expenses.
- Special rules usually apply to rental property also used as a residence during the tax year. Taxpayers should remember that rental income is generally fully taxable.
- Workers who do not have taxes withheld from their pay have two ways to pay their taxes in advance. Here are these two options:
- Gig economy workers who have another job where their employer withholds taxes from their paycheck can fill out and submit a new Form W-4. The employee does this to request that their employer withhold additional taxes from their paycheck. This additional withholding can help cover the taxes owed from their gig economy work.
- The gig economy worker can make quarterly estimated tax payments. They do this to pay their taxes and any self-employment taxes owed throughout the year.