It’s been a buzzword for a few years now, but what is a gig economy, really? Let’s take a deeper dive into the gig economy and the life of gig workers.
The Gig Economy Defined
A gig economy is driven by jobs that are temporary, freelance, part-time, and or seasonal. Due to the flexible nature of these jobs, workers can have several jobs at once or work at a side hustle in addition to their full-time job. Most of these jobs do not provide the benefits of a full-time job, such as health insurance, retirement accounts, or paid vacation time or sick days.
Some examples of jobs that are a part of the gig economy include rideshare drivers (e.g., Uber and Lyft), delivery drivers, freelance writers and designers, tutors, etc.
Are You a Gig Worker?
How do you know if you’re a gig worker? If you are not a full-time employee who receives benefits from their employer along with a W-2 wage and tax statement at the end of the year, you are most likely a gig worker. Some other terms for gig workers are independent contractors or freelancers. You may have a variety of part-time jobs and will have to provide your own health insurance and/or set up your own retirement accounts.
If you are a gig worker, you should receive a 1099-NEC (non-employee compensation) from each company that you work for that reports your income. No taxes will be withheld, so none will be reported on this form.
What Are the Tax Implications of Being a Gig Worker?
When you’re a gig worker, you are responsible for organizing all your tax paperwork in order to complete your yearly tax return. You will be able to deduct work-related expenses from your income, so you’ll need to keep track of those expenses throughout the year. To see a list of eligible categories, please visit Self-Employed Expense Categories. To stay organized, it’s a good idea to add up your expenses on a monthly or quarterly basis.
In addition to keeping track of expenses, you should pay quarterly estimated taxes to avoid a large tax payment and penalties at the end of the year. A good rule of thumb is to set aside 15% to 20% of your paycheck or have a tax preparer estimate how much you owe based on a previous year’s income.
You should receive 1099-NEC statements from all the companies you worked for, but if you do not, you still need to report that income on your tax return.
Also, you may be subject to self-employment tax since taxes are not being withheld from your paychecks. While you do have to pay the self-employment tax, you can get a deduction on half of the amount.
How to Prepare for Your Tax Appointment as a Gig Worker
The best way to prepare is to stay organized throughout the year, keeping track of both your income and your expenses. If you do not receive your 1099-NEC forms before your appointment, check to see if they are available online from your company’s website as a downloadable form.
Have more questions about working in the gig economy? Moore & Paquette Tax Group can help. Call to make an appointment with one of our tax preparers today.
Please note that tax laws and due dates change often, and this is simply a guide to help you. For the most up-to-date information, please contact a tax preparer.