For gig economy workers, the filing process may seem daunting, or bring up lots of questions. To help ease some of that confusion, the Internal Revenue Service (IRS) is sharing tips to help make tax season easier for all consumers, regardless of their filing status.
Getting prepared is important
One of the biggest differences between gig economy workers is whether they’re considered employees or contractors. While this distinction is made by the employer, it changes how these workers are going to file their taxes.
For those considered employees, this translates to filing a W2, while for independent contractors, this means filing a Schedule C (Form 1040).
Because much of the work done by gig economy workers is on-demand, income can fluctuate. And for some, employers may not automatically be deducting taxes from your earnings.
The IRS encourages gig economy workers to report all of their income on their yearly tax returns. When it comes to taxes, estimated tax payments can be helpful. These quarterly payments can cover the costs related to income tax and self-employment tax – which also includes taxes for Social Security and Medicare – throughout the year (instead of in one lump sum at the time of filing).
For those who work in the gig economy in addition to working another job where they’re considered an employee (and will file a W2), there’s another option. In these instances, workers can have their employers withhold extra taxes from their checks to cover the income made at their gig economy job.
Tax law also allows for gig economy workers to deduct expenses they make throughout the year that are directly related to their jobs. Tracking these expenses throughout the year can help taxpayers stay organized and potentially lower what could be owed to the IRS.
The IRS has more resources for gig economy workers available here.