Why Taxes Matter In The Gig Economy: IRS Enforcement

If you're earning money through the gig economy, like delivering food, driving for a rideshare, or selling stuff online, you have to pay taxes on that income. Even though taxes might seem confusing, they don’t have to be! We are here to help!

This guide will break it down in simple terms so you can understand how gig work affects your taxes.

What is the Gig Economy?

The gig economy is any way people make money by doing short-term or on-demand jobs. These jobs are often found through apps or websites. For example, you could:

• Drive for Uber or Lyft

• Deliver food through DoorDash or Postmates

• Rent out a room in your house on Airbnb

• Sell your old stuff or handmade goods on Etsy or eBay

• Do small jobs like mowing lawns or running errands

If you earn money this way, you’re part of the gig economy!

Gig Work is Taxable

No matter how much you earn or how you get paid—whether it’s cash, virtual currency, or goods—you need to report that income on your taxes. It doesn’t matter if it’s just a side gig, part-time work, or a full-time job. Here’s what you need to know:

1. Taxable Income: All the money you make from gig work is taxable, even if the company you worked for doesn’t send you a tax form.

2. Tax Forms: If you make more than $600 in a year, you might get a Form 1099-K or 1099-NEC from the company you worked with. But even if you don’t get these forms, you still need to report the income.

Paying Taxes as a Gig Worker

As a gig worker, you’re responsible for paying taxes on your own since companies usually don’t withhold taxes for you like they do for employees. Here’s how it works:

1. Self-Employment Tax

You’re considered self-employed if you do gig work, which means you’re responsible for paying both income taxes and something called self-employment tax. This tax includes:

• Social Security (12.4% of your earnings)

• Medicare (2.9% of your earnings)

So, if you earn more than $400 from gig work in a year, you’ll need to pay this tax in addition to regular income tax.

2. Quarterly Estimated Payments

Since there’s no boss withholding taxes from your pay, you might need to pay taxes throughout the year instead of waiting until tax time. These are called quarterly estimated tax payments. If you think you’ll owe at least $1,000 in taxes for the year, you should pay taxes four times a year (April, June, September, and January) to avoid any surprises later.

Keeping Track of Your Gig Work

To make tax time easier, it’s super important to keep track of everything:

• Write down all the money you earn: Even if you’re paid in cash or goods, make sure you record it.

• Save receipts for expenses: You might be able to subtract certain business expenses, like gas or supplies, from your taxable income.

• Use apps or tools to help you stay organized. There are accounting apps for self-employed people that can track your income and expenses automatically.

Independent Contractor vs. Employee

One thing to watch out for is how the company you work with classifies you—are you an independent contractor or an employee? This matters because it affects your taxes.

• Independent Contractor: If you’re doing gig work, you’re likely an independent contractor, which means you have to handle your own taxes.

• Employee: If you’re classified as an employee, the company will withhold taxes for you and handle things like Social Security and Medicare.

Most gig workers are independent contractors, so you’ll have to pay your taxes yourself.

Deducting Business Expenses

One perk of being an independent contractor is that you might be able to deduct (subtract) business expenses, which could lower your tax bill. Examples include:

• Vehicle expenses: If you drive for Uber or Lyft, you can deduct things like gas and car maintenance.

• Home office: If you work from home, you may be able to deduct a portion of your rent or utility bills.

• Supplies: If you buy anything specific to your gig, like packaging materials for selling online, you can likely deduct these expenses.

Keep records of everything so you can prove your expenses if needed!

Why Taxes Matter: IRS Enforcement

The IRS is getting more serious about tracking taxes in the gig economy. They have a Criminal Investigation (CI) division with about 3,000 employees, including around 2,100 special agents who investigate tax fraud and financial crimes. Although most IRS employees don’t carry guns, these special agents do, and their job is to catch people who don’t pay their taxes.

In 2021, the IRS’s investigations led to the discovery of over $10 billion in tax fraud. So, if you’re not careful about reporting your gig work income, you could face penalties or even criminal charges.

Hiring in the IRS Criminal Investigation Division

While the IRS’s CI division works to enforce tax laws, they face challenges hiring enough agents. Every year, they lose 150-175 special agents to retirement and other reasons, but they plan to hire about 300-350 new agents this year. Even with new hires, their staff only grows by a small amount.

The good news is, if you do things correctly—like reporting all your gig income and paying your taxes on time—you won’t have to worry about getting into trouble.

How to Stay Tax-Compliant

Participating in the gig economy can be a great way to earn extra cash, but it’s important to stay on top of your tax responsibilities. Here’s what you need to remember:

• All gig work income is taxable. It doesn’t matter if it’s part-time, temporary, or just a side hustle.

• Keep track of your earnings and expenses throughout the year to make tax season easier.

• Pay taxes on time, either through quarterly estimated payments or by adjusting your W-4 if you also have a regular job.

• Managing your taxes while working in the gig economy can feel overwhelming, but you don’t have to do it alone. Whether you’re worried about tracking your earnings, staying on top of expenses, or making sure you pay the right amount of taxes, Chime In Consultancy is here to help!

  We specialize in bookkeeping and tax preparation for gig workers like you. Our experts can:

  • Help you stay organized by tracking your income and expenses

  • Make sure you're taking advantage of all possible deductions

  • Assist with quarterly estimated tax payments

  • Ensure you comply with IRS rules and avoid penalties

  Don't let tax season catch you off guard. Call Chime In Consultancy today to take the stress out of your gig economy taxes and stay focused on what you do best!