What is the gig economy?

The term “gig economy” (also called “on-demand economy”, “sharing economy,” or “access economy”) refers to activity in which people earn income from providing on-demand work, services or goods. Another term for the gig economy is “small business.” Often, the work seems like a new type of economy because it is coordinated through a digital platform like an app or website.

People involved in the gig economy earn income as a freelancer, independent worker or employee. They use technology to provide goods or services. This includes things like renting out a home or spare bedroom and providing car rides.

The following tax preparation advice and other information from the IRS contain pre-planning help for gig economy participants when it’s time to file their tax return. (As always, because your business can be unique, people are advised to seek advice from their trusted financial and tax advisors.)

Here are some things gig economy participants should know about their taxes:

  • Money earned through gig economy work is usually taxable.
     
  • There are tax implications for both the company providing the platform and the individual performing the services.
     
  • This income is usually taxable even if :
  • People working in the gig economy are generally required to pay these types of taxes.
    • Income taxes.
    • Federal Insurance Contribution Act or Self-employment Contribution Act tax.
    • Additional Medicare taxes.
       
  • Independent contractors may be able to deduct business expenses. These taxpayers should double-check the rules around deducting expenses related to the use of things like their car or house. They should remember to keep records of their business expenses.
     
  • Special rules usually apply to rental property also used as a residence during the tax year. Taxpayers should remember that rental income is generally fully taxable.
     
  • Workers who do not have taxes withheld from their pay have two ways to pay their taxes in advance. Here are these two options:
    • 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.

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