Watch our Gig Work Taxes | Tax Me Anything episode.
Welcome to Tax Me Anything, a new TaxAct® video series where we break down real tax questions people are actually searching for. In this episode, Lindy sits down with Tim, our director of product, to tackle one of the fastest-growing tax topics out there: gig work. They talk about what counts as gig income, which tax forms you might receive, and how to file taxes as a gig worker. Their conversation also touches on estimated taxes, deductions, and common myths gig workers need to understand to file with confidence this tax season.
Intro
Lindy (00:06)
All right, hi everyone. I’m Lindy, and I’m starting this small little series called Tax Me Anything. My job is to spend a lot of my day digging into what taxpayers are searching for, and the topic today that we’re gonna focus on is gig workers. This is a fast-growing group that are filing taxes right now. And I know that the team has done a lot across TaxAct to improve that for our customers. So, I have Tim here, our director of product, and he’s going to be helping answer all of these questions that we have today.
Tim (00:37)
Great to be here, Lindy. And you’re right, we’ve made some key updates with gig workers in mind this year.
So, filing a 1099-K, 1099-NEC, or multiple income streams, that can get really confusing really fast. But TaxAct is built to simplify it. So, we’ll guide you through step by step with tools that make that process simple.
What counts as gig work?
Lindy (00:56)
That’s awesome. Okay, so exactly why we’re here today, I’m glad that the tool is able to help us guide through step by step, but there’s still lots of questions.
So even just to start, I think the biggest question is, and the whole reason why we’re here today is, what even counts as gig work? There could be searches I see that are literally that (what counts as gig work), or they may be asking specifically, like if I DoorDash® for one night, does that count?
So, I think just trying to understand anything from delivering from DoorDash, walking dogs on Rover®, does all of that qualify [as gig work]?
Tim (01:30)
It does, and so let’s get into what that means. So, the IRS considers, gig work any flexible, short-term or app-based job where you’re paid directly by a customer or a platform. So, think Uber®, Instacart®, Amazon Flex®, Taskrabbit®, all of that counts.
So, here’s where it gets a little confusing, though, as well. If you’re earning money that way, the IRS considers you self-employed, which actually gives you some benefits that we’ll get into a little bit later. But really that’s the definition of what gig worker means according to the IRS. So short-term, flexible work, that’s app-based.
Lindy (02:05)
Okay, yeah, that definitely helps break it down. If you are going to your job through your app, it’s likely that you are a gig worker and then would be self-employed from a tax perspective.
Tim (02:15)
That’s right.
Lindy (02:17)
Okay, great. And then just to make sure that this is clear too: Even if there are people only doing it for a few hours a week, extra holiday money, whatever it might be, even just a small amount of time that would still include them into this category?
Tim (02:15)
If you earned it, it’s taxable. And it’s important to remember that the IRS gets copies of these documents, too. So, it’s important to report all of it.
Which forms gig workers get (1099-NEC vs 1099-K)
Lindy (02:37)
Okay. All right. And then as far as like what forms that gig workers (self-employed) might get, what should they expect? I think the biggest question I see is, what form should I expect as a gig worker? And it really kind of confuses a lot of people. So, any advice there?
Tim (02:55)
Yeah, it’s a good question. So usually you’re going to see two types of forms. Form 1099-NEC — you’re going to get this when a business pays you $600 or more directly.
Now, where does the 1099-K come in? You might get this from platforms or payment processors. So basically, whenever a third party handles that flow of money, you should expect to receive a 1099-K.
Lindy (03:18)
Okay, so I’m thinking of Venmo® and Plaid® and a couple of other payment types. Is that what you are considering the payment platforms?
Tim (03:26)
Yeah, that’s right. Yep.
Lindy (03:28)
Okay. Okay. And then it is likely that they could or will probably get both of these [forms] then. Is that what we’re saying, that you should keep an eye out for potentially both of these?
Tim (03:38)
Yeah, it’s very possible you get both and both need to be reported. It really just depends on how you’re paid. So, some money may come directly from a company, and other payments might flow through that platform. And that’s really the key difference here is how that money gets sent to you.
How to file gig work taxes (income + expenses)
Lindy (03:52)
Okay, and then that goes right into my next question. Obviously, okay, I have these forms now, what? And we work at TaxAct, a tax company to help them file, but how do they, what would they do with these forms? And that goes into the question that I see, how do I actually file gig work taxes? And then I know we’re coming from obviously at TaxAct, how could they do that? So, I think just understanding from you what that might look like for them in [our] platform.
Tim (04:17)
Yeah, and so a lot of people are used to reporting a W-2. And for gig workers, it is slightly different, but we do try to keep that simple [in the TaxAct program]. We really start by asking what type of work you do. And then we’ll ask you about your income, and that’s what’s reported on the NEC or the K. And then we’ll guide you through your expenses that are related to the type of work you do.
And so, the way that I look at it is there are three key guideposts:
- Tell us about your work.
- Enter your income and expenses related to that work.
- And then we’ll figure out what you can deduct from your taxable income to make sure that you’re getting the best refund possible.
Lindy (04:51)
Okay, I mean that sounds amazing, like you really take it kind of step by step. You wouldn’t even have to consider it as long as you have all those forms available there to help answer those questions.
Tim (05:00)
That’s right, and it really comes down to the type of work you do, the income you’ve earned, and then the expenses related to that work.
Estimated taxes and how much to set aside
Lindy (05:07)
Okay, and then I know there’s a lot around like estimated taxes for gig workers, gig workers in general just being kind of like, “How much will I need to pay? Should I set [money] aside?” Can you kind of just help us understand how much should be set aside and estimating those taxes for gig workers?
Tim (05:28)
Yeah, so you know the good news is that we’re going to walk you through your income and expenses to figure out what deductions you qualify for. Once we have that information, you’ll be able to estimate kind of what you’re going to owe. That way there no surprises and fewer chances of underpaying or getting hit with penalties later on.
In terms of how much to save, you know when you have a W-2, taxes are withheld from each paycheck automatically. But for gig work, no one’s doing that for you. So, it’s up to you to set that money aside and pay the IRS directly. That’s why gig workers often need to pay these estimated taxes that we’re talking about. Paying quarterly keeps you compliant, helps you avoid underpayment penalties, and honestly makes the final tax bill way less stressful.
A good rule of thumb: Set aside 25% to 30% of your gig income. That typically covers both your regular income tax and your self-employment tax, which is about 15.3%.
Lindy (06:20)
Wow, okay, super helpful. So, 25% to 30% of your income should be set aside and that will cover hopefully everything that you need. And then obviously coming time to pay, it’s not going to be this huge chunk. It would be something that you you’re prepared for.
Deductions for gig workers
Okay. All right. So, I know you’ve already kind of mentioned deductions and how TaxAct can help you find some of those deductions. Can you just go into that a little bit more? And I guess for me, I would love to understand just why that matters and how TaxAct is able to help them.
Tim (06:51)
Yeah, definitely. And this is actually one of the key benefits of the IRS considering you self-employed. With that, it actually opens up opportunities to take deductions on things that you wouldn’t have been able to if you were a W-2 employee.
So, the easiest way to think about this is if it’s connected to your gig work, report the expense, and then we’ll help you figure out if that qualifies as a deduction or not. And we walk you through that — common categories like mileage, tolls, insurance, and much more.
We’ll ask you the questions, you tell us what you spent in terms of expenses related to your work, and then we’ll calculate the deductions for you. Making it really easy so that you feel confident that you’re getting the best deduction possible, which can translate into a refund.
Common myths: under $600 + tips and taxes
Lindy (07:31)
Wow, okay, that’s awesome. Our tool seems so smart. So those are the main questions I have about gig work today. There are a couple of things that I just wanna make sure are clear. I think that they’re myths, but I do see them searched, so I wanna just make sure.
So, the first one here, myth number one: If I made under $600, I don’t have to pay taxes.
And then the second myth is: Tips are not taxable.
Tim (07:58)
Yep, so let’s try to address those. So, the first one, even if you don’t receive a 1099, gig income is still taxable. So, the IRS expects you to report it no matter what. So, rule of thumb, if you received income as part of your gig work, report it and we’ll take care of the rest.
In terms of tips, tips count as income. So, whether they come in cash or through an app, they still need to be reported. And there has been a lot of talk about the new no tax on tips law. But just to be clear, this only applies to certain service jobs, and it doesn’t cover social security or Medicare taxes. So, no matter what type of work you do, it’s important to report all income, including tips, and we’ll figure out that taxable amount for you.
Lindy (08:39)
Okay, yep, that’s super helpful. And I know we’ve had a prior discussion with Jared on the no tax on tips. And we also have a couple different resources on our blog that I’ll link here to help if there are other questions specifically around the tax on tips.
But thank you, Tim. Thank you so much. I know that you’ve put so much work into the product, and it’s just been so helpful. It’s going to be so helpful for gig workers this year as they go to file. Thank you for sharing all of your insight today.
Tim (09:08)
Yeah, thanks for having me, and always happy to help. It’s a confusing space, so great topic. And for gig workers out there, just know that TaxAct will guide you every step of the way, and we’ll try to keep it as simple as possible for you.
Lindy (09:20)
Awesome. Thank you. Thank you so much, whoever’s watching, and I hope you have a great day.
The bottom line
Whether you drive, deliver, freelance, or juggle multiple side hustles, TaxAct is built to make filing gig worker taxes easier. We guide you step by step through reporting 1099 income, tracking expenses, finding deductions, and estimating what you.
Ready to take the stress out of gig work taxes? File with TaxAct and let us help you get it right.
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