Taxpayers who work in the gig economy need to understand how their work affects their taxes.
The gig economy is also referred to as the on-demand, sharing or access economy. People involved in the gig economy earn income as a freelancer, independent worker or employee.
This income is usually taxable even if the:
✔Taxpayer providing the service doesn’t receive an information return, like a Form 1099-MISC, Form 1099-K, or Form W-2.
✔Activity is only part-time or side work.
✔Taxpayer is paid in cash.
People working in the gig economy are generally required to pay:
✔Federal Insurance Contribution Act or Self-employment Contribution Act tax.
✔Additional Medicare taxes.
Workers who do not have taxes withheld from their pay have two ways to pay their taxes in advance:
✔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 the other employer withholds 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.