IRS Offers Help to Workers in Gig Economy

The gig economy has exploded around the country. That means numerous work opportunities for individuals but also unanticipated tax complication. To provide assistance to taxpayers and professionals, the IRS has just launched its new “Gig Economy Tax Center.”

Jan 15th 2020
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The gig economy has exploded around the country. That means numerous work opportunities for individuals but also unanticipated tax complication. To provide assistance to taxpayers and professionals, the IRS has just launched its new “Gig Economy Tax Center” (IR-2020-4, 1/9/20).

You can access the Gig Economy Tax Center here.

"The IRS developed this online center to help taxpayers in this emerging segment of the economy," said IRS Commissioner Chuck Rettig in a press release. "Whether renting out a spare bedroom or providing car rides, we want people to understand the rules so they can stay compliant with their taxes and avoid surprises down the line."

The gig economy—also known as the sharing, on-demand or access economy—often includes businesses that operate an app or website to connect people to provide services to customers. Although there are many types of gig economy businesses, ride-sharing and home rentals are two of the most popular. During the last decade, services like Uber, Lyft and Airbnb have become household names.

The IRS indicates that educating gig economy workers about their tax obligations is vital because many don't receive form W-2s, 1099s or other information returns for their work in their occupations. However, income from these sources is generally taxable, regardless of whether workers receive information returns. This is true even if the work is full-time, part-time or if the person is paid in cash.

Typically, workers in the gig economy are treated as independent contractors. Thus, they are liable for taxes like other self-employed individuals, but can also deduct business-related expenses.

Workers may also be required to make quarterly estimated income tax payments, pay their share of FICA, Medicare and Additional Medicare taxes if they are employees and pay self-employment taxes if they aren’t considered to be employees.

The Gig Economy Tax Center streamlines various resources, making it easier for taxpayers to find information about the tax implications for the companies that provide the services and those who perform them. The IRS states in the press release that it offers tips and resources on a variety of topics, including:

  • Filing requirements;
  • Making quarterly estimated income tax payments;
  • Paying self-employment taxes;
  • Paying FICA, Medicare and Additional Medicare;
  • Deductible business expenses; and
  • Special rules for reporting vacation home rentals

Of course, working in the gig economy may also raises state tax issues. For instance, controversial California law AB5, which went into effect on January 1, 2020, codifies that most workers should be treated as employees that are eligible for greater worker protections. Be sure to check out the applicable state tax implications.

On the federal level, the new Gig Economy Tax Center can provide valuable insights, but clients may still need your help. Be prepared to answer questions relating to this continuing business trend.

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