It’s that time of year again – time to file that tax return to see how much money you’re going to get back (if you’re lucky) or how much you’ll owe.
You need to report your gig economy income on your taxes because it is considered taxable income by authorities, such as the Internal Revenue Service (IRS) in the United States. You’ll also need to file a return for state taxes if it is required by your state.
Gig economy income includes earnings from freelance work, independent contracting, and various on-demand platforms like Uber, Lyft, or DoorDash.
When you earn income through these sources, you are generally considered self-employed, and your earnings are subject to income tax and self-employment tax. For more information, take a look at our tax tips for gig drivers to see what types of deductions you might be eligible for.
Why It’s Important
Here are a few reasons why it is essential to report your gig economy income on your taxes:
- Legal requirement: Tax laws mandate that you report all sources of income, including self-employment and gig economy earnings, when filing your taxes. Failure to report this income can lead to penalties, interest, and potential audits.
- Self-employment tax: In addition to income tax, you are typically required to pay self-employment tax, which covers Social Security and Medicare taxes. Reporting your gig economy income ensures you pay the appropriate amount of self-employment tax.
- Accurate tax liability: Reporting your gig economy income helps you determine your correct tax liability, including any deductions and credits you may be eligible for. This can help reduce your overall tax burden.
- Social Security and Medicare benefits: Paying self-employment tax contributes to your eligibility for Social Security and Medicare benefits in the future. By accurately reporting your gig economy income, you ensure that your earnings are properly credited toward these benefits.
- Record-keeping: Reporting your gig economy income encourages better record-keeping and financial management, which can be beneficial for your overall financial health and future tax filings.
Remember that tax laws and regulations can vary depending on your country or jurisdiction, so it’s essential to consult with a tax professional or local tax authority to ensure you accurately report your income and comply with all relevant laws.
Keeping Up Throughout the Year
While some people only have to file a tax return once a year, you may need to make quarterly payments on your taxes.
Quarterly tax payments, also known as estimated tax payments, are typically made by self-employed individuals, freelancers, or those who have significant income not subject to withholding (e.g., from investments, rental properties, etc.). The IRS requires these taxpayers to pay their taxes in installments throughout the year.
The due dates for quarterly estimated tax payments in the United States are generally:
- 1st Quarter: April 15 (for income received from January 1 to March 31)
- 2nd Quarter: June 15 (for income received from April 1 to May 31)
- 3rd Quarter: September 15 (for income received from June 1 to August 31)
- 4th Quarter: January 15 of the following year (for income received from September 1 to December 31)
Keep in mind that if a due date falls on a weekend or a federal holiday, the payment is typically due on the next business day. Tax laws and regulations may change, so it is essential to consult the IRS website or a tax professional for the most up-to-date information.