Gig works make up a large part of the global economy, and more people are getting temporary jobs every year. There are many nuances and unique aspects that all on-demand workers should know about and taxation is, perhaps, the most important of them. In this article, we will answer the most common questions about taxes for gig works in the USA and uncover all the necessary details about filing your side job payments properly.
What Is the On-Demand Economy read here.
Which Jobs are Considered Gigs?
First things first, it is necessary to distinguish gig works from other types of employment. According to the IRS, gigs are specific paying activities often performed via a digital platform. The list includes all sorts of jobs starting with the provision of professional services and ending with selling goods online.
Employees and Independent Contractors
The unique aspect of gig taxation is that there are two different ways you can perform gig works, and they are taxed differently. You can either perform such works as an employee or as an independent contractor. With the latter option, the worker has to pay estimated taxes. It is important to keep in mind that even short-term seasonal jobs that fall into the gigs category are subject to taxes.
How to Pay Taxes for Gig Works?
Whether your gigs are temporary activities or long-term jobs, your net income from them will be subject to self-employment taxes as long as it is higher than $400. The first step of every responsible taxpayer is to keep proper records of their income and expenses. The latter is necessary for the tax deduction, while the former is obligatory for reporting.
The income of independent contractors is subject to quarterly estimated taxes, which are due on the 15th of April, June, September, and January. The quarterly estimation of taxes for gig works is done with Form 1040-ES, the latest revision of which is available on the website of the IRS.
Once you have gathered all the necessary income forms and deducted all the expenses, you’re ready to file the tax return. To do it, you will have to fill out the following forms: Form 1040, Schedule SE, and Schedule C. There are multiple options available for filing the tax return for gig works. We will review them separately below.
IRS Free File
This is native software offered by the IRS. It allows you to choose one of the two options for preparing and filing your taxes: Guided Tax Preparation and Fillable Forms. The latter option is available for any income level, while the former is designed for qualifying taxpayers with an AGI of $73,000 or less.
To file your gig-related income via this software, you will need to prepare a copy of your last year’s tax return as well as the SSNs of yourself and your dependent. You will also need to gather and fill out the forms we have mentioned in the previous section.
Volunteer Income Tax Assistance Site
This option relates to visiting a local site to get personal help from volunteers. You can easily find your local VITA sites using the corresponding tool on the IRS website. In case you decide to visit, don’t forget to ensure the site you have selected performs the necessary services.
Authorized E-File Provider
The IRS has a large number of authorized providers that will allow you to file your taxes electronically. You will find the database of authorized providers on the IRS website, where you just need to enter your ZIP code to get a list for your area.
Filing by Mail
Last but not least, you can file your tax return by mail. You will need to send all the necessary documents to the IRS, while the addresses are available on its website.
Penalties for Overdue Payments
There are two penalties related to gig works you can be charged with: failure-to-pay penalty and failure-to-file penalty. As its name implies, the former is applied to taxpayers who haven’t managed to process the payment by the due date. The fee in that case is 0.5% of the sum, and it is charged for each month, accumulating up to 25%.
The failure-to-file penalty is applied when the taxpayer has filed the tax return after the due date without a reasonable cause. This fee is 5% of the owed sum for each month the filing is overdue, also accumulating up to 25%.
