Even before the pandemic, the number of Americans self-employed or working on a side hustle had been growing, with more than 27 million taxpayers reporting “sole proprietor” income to the IRS in 2018. After the COVID-19 pandemic began, a record 4.3 million individuals started new businesses in the U.S. in 2020, and most of these new small businesses were one-employee operations.
Regardless if you are a full-time gig worker or a traditional employee hustling on the side, it is important to be aware of both the special tax benefits and restrictions that come with self-employment.
You must file a tax return if you have net earnings from self-employment of $400 or more from gig work, even if it’s a side job, part-time or temporary.
You must pay tax on income you earn from gig work. If you do gig work as an employee, your employer should withhold tax from your paycheck. If you do gig work as an independent contractor, you may have to pay estimated taxes.
Gig work is a certain activity you do to earn income, often through an app or website (digital platform). Samples of gig work include the following:
- Drive a car for booked rides or deliveries
- Rent out property or part of it
- Run errands or complete tasks
- Sell goods online
- Rent equipment
- Provide creative or professional services
- Provide other temporary, on-demand or freelance work
The best way to manage taxes for gig work as an independent contractor (self-employed) is to collect and keep your records and receipts during the year. Recordkeeping can help you track your income, deduct expenses and complete your tax return.
Expenses — Save receipts of your expenses. You can lower the amount of tax you owe by deducting certain expenses.
Income — Keep records of money you receive from gig work and sales. You must report all income on your tax return, even if you don’t receive Forms 1099 from the businesses that pay you.
If you are a gig worker and have not filed taxes yet or would like to learn more about maximizing tax credits for your gig work, join Legacy Foundation’s upcoming Tax Chat series!
Maximizing Tax Credits for Small Business Owners and Gig Workers
Friday, April 8, 2022
10AM – 10:30 AM
NWI BizHub Staff Member