Gig work 101

Tax advice for independent contractors

Americans who’ve turned to gig work may soon find an unpleasant surprise: unexpected tax bills.

1

You are a small business Don’t consider yourself a small-business owner?

You are in the eyes of the IRS, even if you are just delivering food. And that opinion is the only one that counts when it comes to taxes.

“Basically, you’re considered an independent contractor,” says Garrett Watson, a senior policy analyst with the Tax Foundation, a nonprofit organization. “You don’t need to do anything super complicated. You don’t need to incorporate or do anything like that.”

But you do need to pay taxes on any money you earn through gig work.

This fact is often an unwelcome, and expensive, surprise for new gig workers. As an employee, income and payroll taxes are automatically withheld from your paycheck. That’s not the case for gig workers.

A good rule of thumb: For every dollar you earn doing gig work, save 30% to put toward income and self-employment taxes. Going forward, plan to estimate and pay those taxes quarterly to avoid a penalty from the IRS.

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Track expenses Gig work isn’t all money in the bank.

You are incurring expenses, too. Keep track of those as you can likely deduct some of them and lower that tax bill.

“Keep good and honest records to take advantage of all deductions that you’re entitled to,” says Ryan Greiser, a certified financial planner in Pennsylvania.

Apps like Stride, Hurdlr and MileIQ automatically track your mileage and expenses, for free or a nominal fee, to help you calculate taxes.

“It is a small investment to track expenses, estimate your quarterly taxes, track your mileage and pay your quarterly taxes online,” Greiser says.

The IRS Gig Economy Tax Center is a good place to find answers to your questions of what can and cannot be deducted.

3

Insurance The IRS isn’t the only agency that needs to know about your new income stream. Your insurance agent needs to be clued in, too. Not disclosing your work could get you dropped from your policy in some cases.

Transporting food or people? You need to know if your personal car insurance policy covers incidents while you’re on the job (it likely won’t.) Rideshare or commercial auto insurance could fill in the gaps. While the platform you work on might cover you with a commercial policy, it only kicks in under specific circumstances.

This article was provided to The Associated Press by the personal finance website NerdWallet. Want to suggest a personal finance topic that Quick Fix can address? Email apmoney@ap.org.