 internal revenue service rs tax news tax tips for gig economy entrepreneurs and workers yeah i got a tax tip for the gig economy watch your because the irs wants a piece of it and they hired a bunch of new agents in order to get it what's that what's that feel they just hired the new agents so they can pick up the phone every once in a while and totally help everyone out okay yeah i that's like saying freddy krueger has those claws just so he can scratch that annoying itch like in the middle of your back that's that's like saying the joker smiling because he's looking forward to a nice wholesome game of checkers with batman this evening it'd be funny if it wasn't so pathetic no what the heck i'll laugh anyway honest that's like saying that that strange horny grade school boy who keeps following little girls into the girl's restroom while wearing women's leggings which display a quite conspicuous horizontal teepee upon entry is doing so because he's actually a girl no of course not strictly professional mr bergen do you have a massive erection really i'm sorry it's it's the pleats it's actually an optical illusion it's the pattern on the pants they i'm actually taking them back right now taking them back to the pants store i mean i'm sorry i hate to sound like a jerk here but that's ridiculous i mean give me a break no no fill i don't mean by a break that i need a piece of a rainbow colored kitkat at the moment okay the irs is on the prowl for profits from gigsters i'm telling you i don't care if they dress it up like they're just trying to help you out with some phone service i mean the irs is projecting revenues will go up due to the new agents i mean what do you think that that's that that's because they're going to be so nice over the phone people are going to stop doing business with the irs's competitors and then start fulfilling their tax paying needs by working with the irs that's that's not how it works there's no competition here taxes are paid by compulsion not markets honestly i mean if you're a gig worker you should go out right now and buy yourself a full length mirror why because you need to watch yourself that's what that's what i think the irs is saying they're like you best watch yourself gig workers because watching you is what the irs is planning to do that's for sure that's that's what i'm talking about anyways tax tip 2023-05 january 12 2023 and recent years the gig economy has changed how people do business and provide services taxpayers must report their gig economy earnings on a tax return whether they earned that money through a part-time temporary or side gig so the gig economy has been a place that the irs has put in more focus in part due to the fact that the gig economy is growing and in part due to the fact that they don't have as much oversight to double check that people are reporting their income on it as they do in some other areas let's just take a step back and take a quick overview of the income tax system we have an income tax system so we're taxed on the income it used to be more of a self-reporting type of system but more and more the irs has been putting in these tools so that they can basically see what you are doing before you actually file the tax return and obviously the most obvious example of that is that on the employer employee side the employer actually withholds the money before you even receive the money and give that to the irs as well as the w2 that goes to you and to the irs as well that's really what they're looking for they're looking for them to get the w2 so they could basically double check that you are reporting the income so the general idea then would be that they're going to try to pressure the side of the business transaction that is paying because the payer possibly have the deduction that's where the iris has leverage so if you have one person's paying the other one's receiving the income the receiver of the income has income which is bad for taxes and the other has a payment which is good for taxes so if it was a business to business transaction they're going to pressure the payer like the employer like the person that pays out a contractor forcing them to provide a w2 form possibly withholdings and 1099 in exchange for being allowed to take the deduction on the tax return which is of course quite substantial however there are some businesses where it's still difficult for the iris to do that most of those businesses used to be the ones that do business directly with the customers and i think that's kind of why they kind of crack down on the pandemic like they're like oh we're cracking down on the restaurants we're cracking down on the hair salons they just don't like those businesses right because those businesses still deal with cash right they can't they don't have as much of a stranglehold over them because they're providing goods and services to the end user and the end user isn't has doesn't have any leverage they don't have any leverage over the end user because there's no deduction that you can get fruit for for getting a massage or your nails done or you know getting your hair cut or something like that so so those businesses has always been things that the iris don't really like they don't have a handle over them so you would think that they would try to squish them out of the economy to the point that they can because they want the control right and so now that the new issue is the fact that you've got the the gig economy has these platforms which i would see as kind of like a silk road it's a new kind of silk road meaning it's connecting people that want goods and services and people that provide goods and services but it's not actually hiring anybody so once again you have this dynamic where the the you have these small businesses that are that are growing but they don't have any way to really force the person paying the business owner to give them a 1099 what are they going to do then well you would think they would try to have somebody force them to give the 1099 either the person that's creating the silk road right meaning the platforms themselves they hold them responsible for issuing 1099s or even worse they make them hire the people as employees acting like that's going to improve life for everybody but you know it'll probably shrink the size of the economy which can only be worse off for people because it's going to have less growth there'll be less stuff the pie will be smaller and that would that's usually not good would be the general idea or they've they force the payment platforms like the pay pals and the stripes and that kind of stuff to issue the 1099s which again you would think would would probably you know limit the scope but that's that's the general idea so if they don't do that they want to of course keep on reminding people that the gig economy still should be reporting their taxes and they might be increasing the audits of people doing the gig economy which is the old-fashioned way that they used to do the enforcement with the one I would think they would kind of fall back on instead of all this other intrusive stuff I think the old audit strategy where you're going to audit returns and have the the risk of people that aren't reporting properly subject to an audit rather than having all this intrusive oversight I think would be preferable in my opinion but no one cares what I think so whatever the IRS gig economy tax center there's a link to that here provides information and resources to help this group of entrepreneurs and workers understand and meet their federal tax obligations here are key things for individuals involved in the gig economy to remember as they get ready to file in 2023 there's a link to that here get a gig economy income is taxable they say that's what they want you to know so taxpayers must report all income on their tax return unless excluded by law whether they receive an information return such as a 1099 or not so there's they're highly concerned with this if you don't get a 1099 you still need to report your income and you should and so they're there they want you to know that individuals involved in the gig economy may also be required to make quarterly estimated tax payments to pay income tax and self-employment tax which includes social security and Medicare taxes so a lot of people when they move from a w2 the whole w2 system to me also there's kind of issues with it in that it's so automatic right now that people actually they feel like that the earnings that they are receiving are actually the net income and not the gross income because the taxes being withheld is such an automatic thing but the problem with that of course is that when you move from a system that you're an employee and the taxes are being withheld for you automatically and everything's kind of reported automatically is you're not really linked in or involved in the actual processing of the system you're not actually writing the check you're not figuring out how much you owe you're not really looking at the gross income versus the net income per se to see how much is going to taxes when you actually move to gig work then then you actually have to calculate those things out and for a lot of people they just haven't had any experience doing that before because everything's just been so automatic so a lot of people a lot of small businesses don't make it not because they don't have the revenue to generate they just get so far behind on the taxes because they just didn't calculate the taxes and and now they're in a hole right once you're in that once you're in a big hole in terms of the debt for taxes that can really be detrimental so you want to make sure that you're calculating the taxes you have to do it as you go and you have to annualize your taxes because you can't just say well look I made $10,000 in gig work this month and I'll just pay whatever percent on $10,000 no you got to annualize it because it's a progressive tax system and then try to figure out how you how much you're going to owe on an annual basis and you've got to pay them during the year why because you'll they'll hit you with penalties and interest possibly if you most likely if you do not so the last estimated tax payment for 2022 is due January 17th 2023 and remember those taxes include not only federal income tax but self-employment tax meaning this the equivalent of like payroll taxes social security medicare both in essence on the employer and employee side again quite significant amount of tax that you need you need to understand there as well as the federal income tax okay workers report income according to their worker classification gig economy workers who perform services such as driving a car for booked rides running errands and other on-demand work must be correctly classified classification helps taxpayers determine how to properly report their income so the iris has this idea that they can define what an employee is and what an a contractor is specifically so that you can they should be at their their ideas they should be able to look at the relationship between you and your employer or your you and your employees or contractors and determine based on what they do whether they should properly be classified as a contractor or an employee now off the iris would kind of like them to be an employee right because if they're an employee the iris can force you the employer to withhold their money and pay them directly to the government as well as report the w2s which is a much more significant reporting so the tilt when you hear the government talking about having companies forcing them to hire people as an employee or a contractor it's usually tilted towards well these evil business owners are trying to hire people as contractors instead of employees and if they were hired as employees they would have more benefits and and this and that but it's not always beneficial i mean it depends on the circumstances whether it be beneficial to be a w2 employee or a contractor obviously the irs wants the employer to be their tax collector right so they kind of like the employee or employees structure so if they are employees they report their wages from the w2 wage and tax statement there's a link to that here if they are an independent contractor they report their income on a schedule c form 1040 profit or loss from business sole proprietorship so obviously if at the end of the day you're not sure then i mean you should probably check it out but you're either going to get a w2 that means you're an employee or a 1099 that means you're a contractor or nothing which means you're a contractor and they just didn't issue a 1099 because they weren't required to or didn't for whatever reason so the business or the platform determines whether the individual providing the services is an employee or independent contractor the business owners can use the workers classification page there's a link to that here on irs for guidance on properly classified employees and independent contractors so you want to get that right i'm like i mean you want to have a justification a rationale as to why you classified someone as an employee or a contractor because if you classify them as a contractor and the irs comes after you and they say no we think based on the circumstance that they should be an employee then the employer might be subject to you know back taxes and you know whatever at that point so check it out have your argument in the case that the irs argues with you about it expenses related to gig economy income may be deductible individuals involved in the gig economy may be able to deduct expenses related to their gig income depending on tax limits and rules so if you're thinking would it be better for me to be a gig economy person or w2 employee if you're a w2 employee then you you might have you might pay less in social security and medicare because you're only paying the employer and not the employee portion when you're a sole proprietor the self-employment tax is actually twice or almost twice you're kind of paying both sides of it but on the other side of things if your w2 employee and your employer doesn't provide you the things necessary to do the job and you're still buying your own stuff meaning you have a bunch of expenses you can't really write them off as easily as a w2 employee but if you were a contractor you would so if you're buying you know if you buy stuff if you're doing business related stuff that's where the benefit comes in for the w2 employee to be able to write those things off taxpayers may be able to lower the amount of tax they owe by deducting certain expenses it is important for taxpayers to keep records of their business expenses pay the right amount of taxes throughout the tax year and employer typically withholds income taxes from their employees pay to help cover taxes their employees owe so i so notice how they say it here i just i just like to point out the framing here because again this is the constant kind of i see it as basically gaslighting that you get from like government kind of entities you can see why they would want to do it and whatnot but they're basically always framing it as this thing is in place to help you right but obviously why is it there it's there because the government wants to make the employer the tax collector and they want to get their money before you even get your greedy little hands on it that's that's that's what the withholding system is designed to do i mean you know so i just you know it's just just to point out the euphemisms from time to time i think is important so individuals involved the gig economy have two ways to cover their taxes due if they have another job whether they're considered an employee they can submit a new form w4 employees withholding certificate to help employers to have more taxes withheld from their paycheck to cover the tax owed from their gig economy activity they can make quarterly estimate attack payments throughout the year so in other words if you have gig economy that's just a side job then maybe if you still have a w2 employee or you might be able to just adjust your w4 which is the form used to increase or decrease the amount that they withhold out of your paycheck to cover the amount from the gig economy that's one approach that you can do if you can't do that because you're not working somewhere else as a w2 employee or you don't want to do it that way because you'd rather pay quarterly instead of paying every paycheck which you know that might be a little might hold on to your money a little bit better or longer you know that way because you might pay your paycheck every week or uh or you don't have or you or you the the w2 withholdings won't cover the amount of gig work that you're doing because you're growing and you're you're doing well with it then uh then you have to do the estimated tax payments so more information down below you got publication 525 taxable and non-taxable income publication 1779 independent contractor and employee there's links to that stuff here there'll be a link to this in the description