The trend toward increased availability of on-demand services in the sharing (or gig) economy has meant ever-increasing portions of income being derived from freelancing, driving, and renting homes or parts of homes. The gig economy worker and tax preparer should remember:
- The income earned is almost always taxable even when there are no information returns received (W-2, 1099-Misc, 1099-K, etc.), the works is performed only part time, or the provider is paid in cash.
- The company providing the platform (i.e., Lyft) and the individuals performing the services (i.e., Lyft drivers) both have tax obligations.
- Workers will generally owe income taxes and types of taxes that would have been paid by an employer in an employer-employee situation.
- Deductions can get complex, and locating records is key to completing an accurate tax return.
- If property was used as a residence and for rental (i.e., Airbnb) during parts of the year, special apportionment rules apply.
Special Gig Worker Tax Payment Issues
Tax rules are set up in part to spread the federal government’s tax receipts throughout the year as taxpayers earn the money on which those taxes are owed. There are two ways gig workers might approach making sure they avoid penalties for underpayment and late payment.
For the worker with gigs as a side job, the main job (if it is one from which the worker will get a W-2) can withhold extra tax. The employee would have to complete a Form W-4 at any time during the tax year to tell that employer to withhold extra tax. Human resources and tax advisors can help with these decisions. Extra withholding can be used to cover what will ultimately be owed on income from the gig work.
A gig worker can also make quarterly estimated tax payments. If 2019 was the first year in which gig income became an issue, the income and taxes can be used to estimate payments for subsequent years. If 2019 quarterly payments were due and not made, a tax professional can be instrumental in determining the course of action for the taxpayer to get current on payments.
WebCE wants taxpayers and tax professionals to have the most up-to-date information during tax season. Our course,
Gigs and Taxes, helps tax professionals understand how to report income and expenses and recognize the federal taxation reporting requirements. View our courses online to learn more about a variety of tax issues most important during this year’s tax season and beyond.
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