IRS Releases New Tax-Filing Guidance for Gig Workers
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While gig work offers the freedom to choose when and what projects to take on, it brings to the forefront the unique challenge of managing your own taxes.
WASHINGTON, D.C. — The gig economy — think driving for Uber, freelancing as a graphic designer, or fixing sinks as a handyman — has turned many of us into our own bosses. This freedom is great, but it comes with a twist: taxes.
Luckily, the IRS recently released new guidance aimed to make tax time a little easier for gig workers. Here’s the quick and dirty.
You’re Your Own Boss, According to the IRS
If you’re earning by gigging, the IRS sees you as an independent contractor, or in simpler terms, a mini-business owner. This status brings specific tax responsibilities, including dealing with forms in the 1099 series. Whether or not you’ve received these forms, you need to report your income to Uncle Sam.
What Counts as Income?
Income isn’t just the cash you make; it includes anything of value you receive. Got paid through a barter exchange? That counts. Received payment in goods or services? Yep, that’s income too. The rule of thumb is: if you got paid, it’s income, and you need to report it.
Keeping Tabs on Your Earnings and Expenses
When you work gigs, it’s crucial to keep records of what you earn and what you spend for your gig. You can deduct certain business expenses, which lowers the tax you owe. Even if no one sends you a form reporting your income, you’re still expected to report it on your tax return.
Forms 1099: NEC, K, and MISC
- 1099-NEC: This is for independent contractors who made $600 or more from a client. It’s a form you might receive, showing what you earned.
- 1099-K: This one’s for payments over $600 received through payment cards or platforms like PayPal. Starting in tax year 2024, if you hit this amount, expect a 1099-K.
- 1099-MISC: This form reports various types of income, like rent or royalties. It’s less common for gig workers but still important.
The Solo Tax Withholding Challenge
Unlike regular employees, gig workers don’t have taxes automatically taken out of their paychecks. It’s on you to set aside money for taxes. The IRS expects most gig workers to make quarterly estimated tax payments. Miss these, and you could face penalties.
The New Kid: NIL Income
For college athletes, monetizing their name, image, and likeness (NIL) is a new way to earn. This income is taxable, just like other gig earnings, so keeping detailed records is essential.
Related: 19 “Odd” Jobs That Pay Surprisingly Well
Key IRS Forms and Guides for Gig Workers
- Form 1040-ES: Helps you figure out and pay your estimated quarterly taxes.
- Schedule C: Where you report your gig income and expenses.
- Schedule SE: Used to calculate the tax on your net gig earnings.
- Publication 505: Offers detailed info on tax withholding and estimated taxes.
Wrapping It Up
The gig economy might feel like a tax labyrinth, but it doesn’t have to be overwhelming. By understanding the key forms, diligently tracking your income and expenses, and planning for taxes year-round, you can navigate through tax season with confidence. For more detailed guidance, the IRS website is your go-to resource.
Related: 6 Tips to Avoid an Unexpected Tax Bill from Your Side Hustle
