 internal revenue service IRS tax news here are some things that gig economy workers should know about their tax responsibilities know this gig economy workers we see you says the IRS we may not have a complete stranglehold over the gig economy yet but rest assured we do see you and we do plan on choking that gig economy to death with regulations just as soon as we can when's the next pandemic scheduled for so that the gig economy matches the rest of the recession riddle region we currently inhabit you know how it is with the government says the IRS we truly believe money isn't everything however the big guy just wants is 10% or 30 or 50 or however much he can take really if you run in the right circles we don't even care much what you actually do sell drugs provide China with American intelligence use political influence to get paid from foreign oil companies while we cut oil production in America just remember one thing never forget the big guy he wants is 10% or 30 or 50 or however much he can take really the big guy does have a substantial rate hike plan in mind however out of pure coincidence it's not scheduled to be implemented until after we've taken everyone's guns okay that was just a joke let's get into what the IRS actually says here IRS tax tip 2022-97 June 27th 2022 many people take up gig work on a part-time or full-time basis often through a digital platform like an app or website gig work such as driving a car for booked rides selling goods online renting out property or providing other on-demand work is taxable and must be reported as income on the workers tax return so the iris has spent a lot more time focusing in on gig work for multiple different reasons let's take a step back to kind of understand this in a broader view note of course when we talk about an income tax we're gonna be taxed on income so everything's kind of flipped on its head for taxes income is kind of bad because if we have to report the income we're subject to the tax on it expenses which are usually bad or kind of good on the tax side of things every transaction that we have has money or some kind of something value going from one person to the other trading of goods and services typically for money the person that is receiving is having income the person that is paying basically has an expense so expenses are good for taxes income is bad for taxes so if the government wants to kind of look over people's shoulders for the reporting of the income taxes they're going to be looking over on the expense side of things that's where they have the leverage so the person that is paying is someone that wants to have a deduction so the iris can then say well if you're paying that and you want the deduction you have to basically ran out you got to tell us who you gave the money to now if you're an employee employer situation that's where the government has the most leverage because in that situation they not only can force basically the employer to tell the IRS the government how much they paid to the employee but also required that they do other things such as fake withholdings of the taxes actually paying the money that would be going to the employee directly to the government so that's where they have the most leverage why do they have that leverage because the employer wants the deduction and so they've got more leverage to say if you want the deduction do what we want you to do and then if you go into like a sole proprietors type of situation then certain sole proprietors are going to have more regulation than other sole proprietors so if you're a sole proprietor and you work for contracts for a big company the big company that is paying you is going to want the deduction for paying you and therefore the IRS has leverage on the person that is paying the person that's getting the deduction so they're going to go to the payer and say well you need to report a 1099 and therefore even as a sole proprietor you may not have withholdings but you still have these 1099s that are also going to the IRS not just to help you out this is to help the IRS out same with the W2 it's going to the IRS so that they can double check and look over you know everyone's shoulders to make sure that the reporting is proper now classically there's some areas where this doesn't work quite well for example a sole proprietor that's in a restaurant or that does a hair salon nail salon masseuses and so on because they work for the end customer not another business so if you're getting paid from a customer the customer doesn't get a deduction for getting their hair done or going to a restaurant typically so the IRS doesn't have the same kind of leverage to make them issue a 1099 which is one reason the IRS doesn't really like those kind of businesses that much because they can't look over the shoulder of them as much which may be why they kind of crack down on them during the pandemic but that's just a theory but in any case so now we've got the gig work which is the kind of one of the new things that came down the pike here in the gig work you've got these different components involved but at the end of the day really what's happening is you've you've got the worker that's working for the in-person so if you're driving a car then you're basically working for the person that wants the ride and your sole proprietor in essence but you've got this middle person which is the platform which is connecting the two so the platform isn't really who you're working for you shouldn't so you could think of it well why doesn't the platform give you a W2 and it's like well you're not really working for the platform the platform is just connecting to people that want services that are really an individual person not a company and and a sole proprietor so you would think then this would be another area where there's not any kind of reporting requirements from either of those two parties but of course the iris is going to want some kind of reporting so they're probably going to try to step into the platform area or into whoever's paying like the PayPal or something like that that's facilitating the payment to try to get some oversight over over these economies which will probably hurt the economy economically but you can see why the iris would want to do that to get a better idea of the tax dollars that would be involved so that's the general idea so here are some things gig workers should know to stay on top of their tax responsibilities gig work is taxable earnings from gig economy work is taxable regardless of whether an individual receives information returns so that means whether you get a 1099 or not you should report the taxes and part of the problem with this also is that the fact that the iris has gotten so good at these kind of reporting of the W2's and the 1099's we've actually they've put it into a system as if it seems like if you don't get one of these forms then you're not required to file anything and that's not really the case those forms are supposed to be kind of like a double a double check type of thing so in any case if you worked at a W2 job and then you work at a gig economy or something like that you may you're not gonna have any you've been kind of trained not to really understand how the whole thing works because it's all been kind of automatic as it happens and and now you're in a situation where of course you're supposed to be required to report the income and may not be used to that so the reporting requirement there's a link to that here for issuance of form 1099 K change for payments received in 2022 to totals exceeding $600 regardless of the total number of transactions this means sub gig workers will now receive an information return this is true even if the work is full time or part time gig workers may require to make quarterly estimate of tax payments so no matter what you're doing if you're going to a sole proprietor type of business you're probably from a W2 business you're probably not used to making quarterly estimated payments because again the fact that they that the iris has made it so kind of automatic and forced the employer to do it has kind of made us become not totally aware of what is actually happening so if we move to somewhere either through going to a sole proprietorship from a W2 or go into retirement we're often doing so without without the tools we need to know understand that our own income taxes that we're basically paying because we've we've got a system we're not we're not the ones actually physically paying it they're taken out of our checks already so you got to keep that in mind because if you don't have that even if your gig economy is going well you'll you'll end up at the end of the year without reporting taxes or something that you'll get crushed with taxes at some point that's really disheartening so if they are self-employed gig workers must pay all their social security and Medicare taxes on their income from the gig activity social security and Medicare are often taxes again we're not getting a grasp of it when we file the form 1040 because usually we're just thinking about income taxes there and getting a refund from the withholdings that have been taken out but the social security and Medicare are also things that we're going to have to deal with if we're a sole proprietor and they're substantial so proper worker classification while providing gig economy services is is important that the taxpayer is correctly classified this means the business or the platform must be determined whether the individual providing services is an employee or independent contractor so again this gets confusing with the gig economy is because really you would think the platform itself is connecting to people and and therefore is just basically a connecting platform not that the people are working for the platform but again the IRS is going to want it so that the platform that you're working for the platform or at least a contractor of the platform or a contractor in some way so they can force somebody to issue issue w2's or and or the 1099 forms taxpayers can use the workers classification page on irs.gov to see how they should be classified so independent contractors may be able to deduct business expenses depending on tax limits and rules it is important for taxpayers to keep records of their business expenses so paying the right amount of taxes through the year and employee or typically withholds income taxes from their employees pay to help cover income taxes their employees oh so again they they say it as if it's a helpful thing obviously I mean it could be helpful it's an easy thing to have the withholdings taken out but clearly it is done from the IRS's perspective to force the the employer to take the money out to make sure they get paid right so that so that you never touch the money but again it makes us not a little bit lacks the day's nickel not really understand you know how the process works because we're not actually setting that up or making the payments oftentimes so gig economy workers who aren't considered employees have two ways to cover their income taxes they can submit a new w4 to their employer to have more income taxes withheld from their paycheck if they have another job as an employee so if you're a w2 employee and then you pick up gig work you're not going to have possibly the same kind of payments coming out of the gig work but you're going to have more income so if you can adjust your withholdings on your other part-time job to cover your gig economy work it might be that you're basically withholding almost everything on your other job but because now you've got this other income from the gig economy but that's one way that you can you can do it make quarterly estimated tax payments income taxes through the year so the other way you do it is to actually set up your quarterly taxes and pay on a quarterly basis throughout the year this is difficult because you don't know how much you're going to owe until the end of the year because we have a progressive tax system we have a tax system that's currently changing all the time and we have a complex tax system with a lot of different kinds of deductions and so on that can alter the taxes from year to year so you really don't know what your taxes are until you file the tax return by April 15th possibly of the following year but you have to you're supposed to pay as you go so you have to make the estimates and if you don't do that then you're going to end up with a big tax bill at the end of the year and possibly tax penalties and interest which can really hamper a business that otherwise could be doing quite well just because you know you got behind on the taxes so the gig economy tax center on IRS.gov answers questions and helps gig economy taxpayers understand their tax responsibilities more information are at the links below you got publication 5369 gig economy and your taxes things to know publication 1779 independent contractor or employee is my residential rental income taxable and or are my expenses deductible there's links to that stuff here there'll be a link to this in the description