What gig workers need to know about taxes

If you became a gig worker during the pandemic, beware: Your taxes just got more complicated.

Gig work — Uber driving, Instacart shopping, Amazon Flex delivery and so on — is on-demand, freelance work that’s typically taxed as self-employment. Instead of having an employer withhold money from your paycheck, you’re an independent contractor who is expected to pay taxes on your gig income as you earn it. You’ll also owe a larger share of your pay to Social Security and Medicare taxes.

On the plus side, you may have more opportunities to deduct your expenses and save for retirement than you do as a W-2 employee.

SELF-EMPLOYMENT

TAXES ARE A MYSTERY TO MANY » About half of U.S. adults say they don’t have a good understanding of the tax implications of freelance or gig work, according to a recent NerdWallet survey. Yet this type of work was a growing part of the U.S. economy even before the pandemic upended people’s work lives.

A survey last summer by Upwork, a freelance job platform, found 59 million Americans — or 36% of the U.S. labor force — had freelanced in the previous 12 months. But COVID-19 lockdowns led to big changes in the composition of the freelance fleet. Millions had to quit during the pandemic, often because of lack of work or fear of contracting the virus. At the same time, massive unemployment and a surge in demand for home delivery led millions of others to seek out freelance work for the first time.

GIG WORK TAX BASICS » Regular employees get W-2s in January from their employers showing how much they earned the previous year and how much was withheld in taxes. The self-employed, by contrast, may get tax forms known as 1099s showing how much a company paid them. Even if you don’t get a 1099, though, you’re expected to file a tax return and report all your self-employment income if your net earnings are $400 or more. Net earnings is basically the income you earn from your self-employment minus allowed deductions.

You may be required to send out 1099s if you paid $600 or more to any person or company as part of your business. The deadline to file those was Feb. 1.

You’re also going to owe selfemployment tax. Employees typically pay 6.2% of their income in Social Security taxes and 1.45% in Medicare taxes, while their employers pay an equal amount. But if you’re your own employer, you typically pay both halves of those taxes: 12.4% to Social Security and 2.9% to Medicare, for a total of 15.3%.

WHAT YOU CAN DEDUCT » Internet, phone service, transportation, health insurance, a home office — all these and more are potentially deductible, at least in part, if they are “ordinary and necessary” parts of running your business.

But you can go too far. You may need cell service for the app-based driving or delivery work you do, for example, but you can’t deduct 100% of the cost — only the portion that’s related to your gig work. If 25% of your phone use can be attributed to your gig, then you can deduct 25% of the cost.

The 15.3% self-employment tax mentioned above is also deductible. You can deduct half of what you pay in self-employment tax when figuring your income taxes.

You also can deduct retirement plan contributions. While it’s generally too late to set up a solo 401(k) or a SIMPLE for 2020, you can open and contribute to a SEP IRA until your tax filing due date: April 15 plus extensions.

AVOIDING PENALTIES »

You’ll typically avoid underpayment penalties if you end up owing the IRS less than $1,000. You’ll also be penalty-proof if your 2020 tax payments are at least 90% of what you ultimately owe for the year, or 100% of what you paid in 2019, whichever is smaller. (But if your adjusted gross income in 2019 was more than $150,000 — or $75,000 for married filing a separate return — that threshold rises to 110% of what you paid in 2019.)

Don’t let the fear of owing money keep you from filing, however. The IRS has payment plans, and its penalties for failing to pay on time are far less than those for failing to file a return on time.

Tax software can guide you through the process, but consider hiring a tax professional to help you if this is the first time you’ve filed as self-employed. There are enough gray areas and complications to gig work taxation that having help from a pro can pay for itself.

This column was provided to The Associated Press by the personal finance website NerdWallet. Liz Weston is a columnist at NerdWallet, a certified financial planner and author of “Your Credit Score.” Email: lweston@ nerdwallet.com. Twitter: @lizweston.

MICHAEL SOWERS (DRESHER/ UPPER DUBLIN) » Sowers had a game-high three assists and also added a goal to tie the game-high in points with four for the Duke men’s lacrosse team last Friday in the Blue Devils’ 12-10 victory over Denver.

Sunday, Sowers dished out a game-best three assists as Duke topped Robert Morris 16-12.

• PENN STATE WOMEN’S BASKETBALL’S MADDIE BURKE (DOYLESTOWN/CENTRAL BUCKS WEST » Burke had her fourthstraight game hitting three or more 3-pointers Sunday, going 5-of-8 from beyond the arc in scoring 15 points as the Nittany Lions rolled past Wisconsin 9874. Burke also tied the team-high with fire rebounds, handed out an assist and made a steal.

Last Thursday in PSU’s 85-74 victory over Nebraska, Burke had 13 points — connecting on a trio of 3-pointers — eight rebounds, an assist, a steal and a block.

• VILLANOVA MEN’S BASKETBALL’S

COLLIN GILLESPIE (HUNTINGDON VALLEY/ARCHBISHOP WOOD) » Gillespie finished with 12 points, five assists and three rebounds while Eric Dixon (Willow Grove/Abington) chipped in two points as the Wildcats defeated Georgetown 84-74 Sunday.

Last Wednesday in a 70-59 loss to St. John’s, Dixon registered

six points and a rebound with Gillespie tallying four points, six assists, three rebounds and a steal.

• NATALIE KUCOWSKI (PHILADELPHIA/SAINT BASIL) » Kucowski paced the Lafayette women’s basketball team with 10 points while also collecting seven rebounds, four assists, two steals and a block as the Leopards fell 53-46 to Boston University Sunday.

• QUINNIPIAC MEN’S BASKETBALL’S

SETH PINKNEY

(WARMINSTER/ARCHBISHOP WOOD) » Pinkney went a perfect 5-for-5 from the field in scoring 11 points and also had two rebounds, an assist and a block Sunday as the Bobcats bested Fairfield 7863. For the season, Pinkney is 35-of-41 (85.4 percent) from the field.

Fairfield’s Zach Crisler (North Wales/La Salle) finished with three points, two rebounds and an assist.

• PENN STATE WOMEN’S

SWIMMING’S

STEPHANIE

SZEKELY (DOYLESTOWN/ GWYNEDD MERCY) » Szekely took first place in the 400 individual medley (4:18.80) and second in both the 200 back (1:59.62) and 200 individual medley (2:03.43) as the Nittany Lions defeated Michigan State 120-50 last Saturday.

Abbie Amdor (Dresher/ Upper Dublin) earned a third-place finish in the 200 free for PSU with a time of 1:50.86.

• Jack Clark (Cheltenham/Cheltenham) and Clifton Moore (Ambler/ Hatboro-Horsham) both scored in double figures last Wednesday in the La Salle men’s basketball team’s 8275 victory over Saint Louis.

Moore tallied 15 points — going 6-for-8 from the field and 3-for-4 on 3 –pointers — grabbed nine rebounds and also had three assists and a block, Moore posted 11 points, six rebounds, three blocks and an assist.

Last Saturday in the Explorers’ 76-68 loss to Fordham, Clark collected 16 points, four rebounds, two assists and two steals with Moore going for six points, eight rebounds and an assist. • RHODE ISLAND WOMEN’S

BASKETBALL’S

BROWN

KASSONDRA

(ABINGTON/ ABINGTON) » Brown had six points, eight rebounds, an assist and a steal as the Rams defeated George Mason 63-27 last Friday. Brown then registered six points and two rebounds in URI’s 56-53 loss to Fordham Sunday.

• LIZZIE OLEARY (WILLOW GROVE/ABINGTON) » Olearyhad five points, five rebounds, an assist and a steal as the Delaware women’s basketball team earned a 65-59 win over Northeastern Sunday.

Maddie Vizza (Southampton/Germantown Academy) posted five points, a rebound and a steal for Northeastern while Izzy Larsen (Hatfield/ Archbishop Wood) chipped in two rebounds, a point and an assist.

Last Saturday in Delaware’s 59-47 victory over Northeastern, Oleary had two points, eight rebounds and two steals for the Blue Hens while Larsen gave the Huskies six points, two rebounds and a steal.

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BASKETBALL’S PAIGE MOTT

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State.

• LAUREN FORTESCUE (NORRISTOWN/PLYMOUTH

WHITEMARSH) » Fortescue had six points, a pair of steals and an assist as the Salisbury women’s basketball team routed Lancaster Bible 77-32 last Thursday.

• LA SALLE WOMEN’S BASKETBALL’S

MOLLY MASCIANTONIO

(MORTON/ARCHBISHOP CARROLL) » Masciantonio recorded eight points, five assists, three rebounds and a block while Jaye Haynes (Fort Washington/Germantown Academy) added four points Sunday as the Explorers fell to Dayton 9566. Last Friday, Masciantonio had 12 points, two rebounds, a steal and a block in La Salle’s 72-65 loss to Saint Louis.