The gig economy has become a mainstream phenomenon, and gig workers are finding success in some creative ways. Gig workers may be delivery drivers, freelancers or even doctors who put in extra hours conducting virtual visits, but no matter what a gig worker does, they still need to pay attention to their tax obligations. Unfortunately, many people who are new to the gig economy aren’t entirely sure what their tax liabilities are, and this can lead to trouble come tax season.
If you’ve found yourself wondering how to deal with taxes as a gig worker this year, below are three things to know before you file:
1. Get Your Paperwork in Order
When you work a traditional job, your employer will usually provide you with IRS Form W-2. This is the tax form that will be used to calculate your tax liability, and it also helps to determine your tax filing status and income bracket.
Gig workers will generally be considered contractors instead of employees. As such, the companies that hire gig workers will usually handle tax reporting for payout processes a little bit differently. IRS Form 1099-MISC is often issued to gig workers, and this form will include information used for tax reporting for payout processes. Form 1099-MISC is issued by each company or client a gig worker serves during the year, so make sure you keep records of all of your work to get the right forms from all of your clients.
2. You Must Withhold Your Own Taxes
Another key difference between working for yourself and working for an employer is the matter of tax withholding. When you work for an employer, your company withholds taxes from each paycheck. When you work in the gig economy, you are usually required to put aside your own tax money to be paid at tax time. Failure to withhold the right amount of taxes may see you end up with a lot of tax debt in April.
3. Your Tax Liability Can Change
You should also note that your tax liability can change as you earn more. While you may start off in one tax bracket at the beginning of the year, you may move into a higher tax bracket by the end of the year. Consider talking with a tax specialist to learn more about how this can affect your situation.
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