Do you have a side hustle? Be advised that the IRS is cracking down

Understanding how gig work can affect taxes may sound complicated but, it doesn't have to be.

Whether you have a full-time job or just a side hustle, you must report any gig economy earnings on your tax return.

The IRS requires all US payment processors to provide a Form 1099-K for certain customers who receive payments for goods or services. So if you use a service to process card transactions, you will need to complete a Form 1099-K to show the gross amount of all reportable payment transactions completed.

In the past, the filing threshold for 1099-Ks was when the gross amount of total reportable payment transactions during a calendar year exceeded $20,000, and the aggregate number of transactions for that payee in that year exceeded 200. This has now changed.

If you work in the gig economy, here are some things you should keep in mind to properly fulfil your tax responsibilities:

Gig work is taxable

• Any earnings from gig work are taxable, regardless of whether an individual receives information returns.
• The reporting requirement for issuance of Form 1099-K changed for payments received in 2022 to totals exceeding $600, regardless of the total number of transactions. This means some gig workers who work full-time, part-time or if they are paid in cash, will now receive an information return.
• Gig workers may also be required to make quarterly estimated income tax payments and pay their share of Social Security and Medicare taxes.

Check your worker classification

• You need to ensure that if you work in the gig economy you are correctly classified. This means the business or platform must determine whether you are an employee or independent contractor.
• Independent contractors may be able to deduct business expenses, depending on tax limits and rules.
• Ensure that you keep records of your business expenses throughout the year.

Pay the right amount of tax throughout the year

• An employer will typically withhold income taxes from their employees’ pay to help cover income taxes their employees owe.
• If you are a gig economy worker, who is not considered an employee, then you have two ways to cover your income taxes:
  • Submit a new Form W-4 to your employer to have more income taxes withheld from your paycheck, if you have another job as an employee,
  • Or, make quarterly estimated tax payments to help pay your income taxes throughout the year, including self-employment tax.

How we can help

Keeping records of expenses is more important now than ever. TaxAssist offers an expert professional advisory service. Inquire online here to book your free, no obligation consultation.

Last updated: 22nd July 2022