Gig workers, the gig economy has altered how individuals conduct business and offer services in recent years. Whether they obtained their income from a temporary, side, or part-time job, taxpayers are required to record their gig economy earnings on a tax return. To assist these business owners and employees in understanding and fulfilling their federal tax requirements, the IRS offers information and services through its Gig Economy Tax Center. Here are some important points that those who work in the gig economy should keep in mind as they prepare to pay their taxes in 2023.
Gig economy income is taxable
- Regardless of whether they get an information return like a 1099 or not, taxpayers are required to record all income on their tax return unless specifically exempted by law.
- The self-employment tax, which includes Social Security and Medicare taxes, and income tax may compel individuals working in the gig economy to make quarterly anticipated tax payments. On January 17, 2023, the last projected tax payment for 2022 is due.
Workers report income according to their worker classification
The correct classification is necessary for gig worker who provides services like driving a car for scheduled trips, errands, and other on-demand jobs. The classification aids the taxpayer in determining how to declare their income legally.
- Deducting some costs may allow taxpayers to pay less in taxes overall.
- Taxpayers should maintain track of their company costs in their records.
Pay the right amount of taxes throughout the year.
To assist in paying the taxes that their employees owe, employers frequently deduct income taxes from their employee’s paychecks.
There are two ways gig worker to pay their taxes:
- In order to have extra taxes withdrawn from their salary to offset the tax due from their gig work, they can file a new Form W-4, Employee’s Withholding Certificate, to their employer if they have another employment where they are classified as employees.
- Throughout the year, they are able to make quarterly anticipated tax payments.
Steps to Take Now to Get a Jump on Your Taxes
Gather and Organize Your Tax Record
- A complete and accurate tax return is simpler to prepare when your tax data are organized. It helps you prevent mistakes that cause processing lags that slow down your return and could also enable you to discover omitted credits or deductions.
- If you don’t yet have your tax records, such as:
- From your employer, W-2 forms (s)
- Forms 1099 from banks, issuing organizations, and other payers, such as payouts from a pension, annuity, or retirement plans, dividends, unemployment compensation, and dividends
- If you participated in the gig work, please submit Form 1099-K, 1099-MISC, W-2, or another income statement.
- If you received interest, complete Form 1099-INT.
- Other tax returns and records of transactions using digital assets
- The Health Insurance Marketplace Statement, Form 1095-A, is used to compare advance payments and claims. IRS or other government agency letters CP01A Notice with your new Identity Protection PIN for premium tax credits for 2022 Marketplace coverage
Notify the Social Security Administration of a legal name change and the IRS if your address changes. Keep in mind that most income is taxed. This comprises of revenue from the gig work, interest earned, unemployment compensation, and digital assets.
Why should I keep records?
Good records will enable you to monitor the progress of your business and identify sources of income and deductions for various types of expenses and liabilities.
What kinds of records should I keep?
You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any particular kind of records. However, your business affects the type of records you need to keep for federal tax purposes.
How long should I keep records?
You must keep documents to prove your income or deductions on a tax return. The length of time you should keep a document depends on the action, expense, or event the document records. You must keep records for as long as needed to prove the income and deductions on your tax returns.
How should I record my business transactions?
Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. These documents contain information you need to record in your books.
What is the burden of proof?
The burden of proof is the responsibility to substantiate entries, deductions, and statements made on your tax returns. You must be able to prove certain elements of expenses to deduct them – this is known as the cost of proof part of the taxman’s job.
How long should I keep employment tax records?
Keep all records of employment taxes for at least four years.
Make sure you’ve withheld enough tax
If you filed a tax return and either owing money or got a sizable refund, think about increasing your withholding. Changing your withholding might save you money on taxes or allow you to keep more of your paychecks. Credit amounts may vary annually, so check your eligibility for any tax credits that could require a withholding adjustment by going to IRS.gov and using the Interactive Tax Assistant. Events in withholding may also result from life changes like getting married or divorced, welcoming a kid, or taking up a second job.
To discover how much tax should be deducted from your paycheck, use the Tax Withholding Estimator. You may use this IRS.gov calculator to see if you need to change your withholding and provide your employer a new Form W-4.
Think about tax-estimation payments. You should submit anticipated tax payments on a quarterly basis if you earn a substantial amount of non-wage income, such as from your own self-employment, investments, taxable Social Security benefits, and, in some cases, pension and annuity income. The last payment for 2022 is due on January 17, 2023.
The IRS offers information and services through its Gig Economy Tax Center. Gig economy employees are required to record all income on their tax returns. The self-employment tax, which includes Social Security and Medicare taxes, and income tax may both compel gig economy workers to make quarterly anticipated tax payments. Tax records will enable you to monitor the progress of your business and identify sources of income and deductions for various types of expenses and liabilities. This comprises of revenue from the gig economy, interest earned, unemployment compensation, and digital assets.
The length of time you should keep documents depends on the action, expense, or event. The burden of proof is the responsibility to substantiate entries, deductions, and statements made on your tax returns. You must be able to prove certain elements of expenses to deduct them. Changing your withholding might save you money on taxes or allow you to keep more of your paychecks.
Publication 525 Taxable and Nontaxable Income