The number of workers engaged in the “gig” or sharing economy had already been growing before the COVID-19 pandemic hit, according to several reports. During the pandemic, reductions in working hours have resulted in even more people turning to gig work to make up lost income. People who perform these jobs—which include delivering food, providing car rides, walking dogs, and providing other services—should be aware that there are also tax consequences.
Income received from freelancing or from online platforms offering goods and services is generally taxable—and that remains true if the income comes from a side job or if you don’t receive an income statement reporting the amount you earned for the work.
Gig worker classification
Workers who are independent contractors and conduct their jobs through online platforms—such as Uber, Lyft, Airbnb, and DoorDash—are classified by the IRS as gig workers.
Independent contractors don’t receive employer-sponsored health insurance or benefits associated with employment. In addition, they aren’t a part of states’ unemployment insurance systems and aren’t covered by the minimum wage or other protections provided by federal laws. In addition, they’re solely responsible for retirement savings and taxes.
Considerations for gig workers
If you work as a gig worker, you should be aware of the following tax considerations:
- You should receive an income statement—such as a Form 1099-NEC, Nonemployee Compensation, or Form 1099-K—from the online platform you work for.
- Since your income isn’t subject to withholding, you may need to make quarterly estimated tax payments. Estimated tax payments for a given tax year are typically due on April 15, June 15, September 15, and January 15 of the following year. Due dates that fall on a Saturday or Sunday are moved to the next business day.
- Your business expenses may be tax-deductible, though this is subject to the normal tax rules and limitations. If, for example, you provide rides with your own car, it may be possible to deduct depreciation for wear and tear on the vehicle. However, if you rent a room in your main or vacation home, you should be aware that there are complex rules for deducting expenses.
Recordkeeping and further questions
You should strive to keep thorough records of income and expenses in case the IRS or state tax authorities choose to audit you. If you have questions about filing taxes as a gig worker or claiming deductions, contact us. We can help you avoid unwanted surprises when you file your tax return.