Gig economy work can affect a taxpayer’s bottom line
Posted on February 10, 2020
The gig economy is shorthand for “a labor market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs,” according to the U.S. Department of Labor.
The increasing number of those who work in this independent part of the workforce need to prepare for tax filing very differently than those that work for a standard fee or yearly salary, say the CPAs at Teipen Selanders Poynter & Ayres.
If you are a freelancer, independent worker, or work part-time, here are some things you should know about your work and taxes:
- There are tax implications for you as well the company providing the platform for your services.
- Your income is taxable even if:
- You did not receive an information return such as Form 1099-MISC, Form 1099-K, or Form W-2.
- Your activity is only part-time or side work.
- You are paid in cash.
- Those 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.
The good news for independent contractors is that you may be able to deduct business expenses such as the use of your car or home office – but only if you have kept good records of these business expenses. Ask your CPA to help you determine how much you can verify and claim.
Gig workers who do not have taxes withheld from their pay have two ways to pay their taxes in advance:
- If you have another job where your employer withholds taxes from your paycheck, you can submit a new Form W-4, requesting that the other employer withhold additional taxes from your paycheck. This additional withholding can help cover the taxes owed from your gig work.
- You can make quarterly estimated tax payments, based on last year’s tax returns together with your best guess on 2020’s owed taxes. These quarterly taxes are paid at regular intervals throughout the year. Your CPA can help guide you on how to assess and pay these estimated tax installments. Any overpayments come back to you as a refund, or can be applied to your first quarter’s payment for the coming year.
There’s a lot to like about being an independently employed worker, as long as you keep good records. If you are new to the gig economy, set up an appointment to talk to one of our CPAs. We want you to enjoy all the tax benefits available to you.