Robbin B. Brophy, EA
Haywood Chamber Member & Ambassador
The gig economy allows people to earn income using technology to arrange transactions. This includes performing rideshare services or deliveries, renting out property, selling goods online, or providing freelance work. Often, customers and providers of goods or services connect through a digital platform on an app or website. It is important for all gig economy workers to understand their tax obligations.
All income whether part-time, temporary or side work must be reported on an income tax return. The income does not need to be reported on a Form 1099, W-2 or other type of information return to be included in taxable income. The work performed can be paid for in the form of cash, property, goods or virtual currency. Taxpayers may be required to make quarterly estimated tax payments and pay self-employment tax for income not reported on a Form W-2 where an employer remits the FICA taxes to the government.
It is crucial that business owners correctly determine whether the individuals providing services should be treated as employees or independent contractors. The IRS has a worker classification page on IRS.gov to help taxpayers determine how they are being classified. Independent contractors may be able to deduct business expenses and it is important to keep records of expenses incurred throughout the year. Save receipts of your expenses in order to lower the amount of tax you owe. Expenses must be ordinary and necessary such as the cost of a cell phone and the related monthly service, mileage (keep in mind you must track total mileage, business mileage and personal mileage), snacks or drinks provided to rideshare passengers are just some examples.
Gig economy workers, who are not considered employees, have two ways to cover their income taxes. If they have another job as an employee, gig workers can submit a new Form W-4 to their employer to have more income taxes withheld from their paycheck. Another way to pay income taxes is to make quarterly estimated taxes throughout the year to pay the Federal tax and self-employment tax. North Carolina estimated taxes are also required.
The IRS has many resources on their website relating to gig economy workers and Publication 535 provides useful information related to deducting business expenses.
Robbin Brophy is an enrolled agent, licensed by the US Dept of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. Call (828)558-4300 for more information.
Published in Positively Haywood, May 2023
