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By Lisa Bakewell
In Part 1 and Part 2 of this tax update, we discussed stimulus payments, PPP loans, and other COVID-related implications for practitioners’ 2021 taxes. Here is additional information regarding “gig work.”
NOTE: This article was not written by a tax professional. ABMP does not intend the information in this article to be official tax advice. Please consult a certified tax preparer regarding the material in this article to determine whether it is applicable to your situation.
Keep in mind, the information in this article was current as of January 6, 2022. Since COVID-19 relief efforts are fluid, please check with IRS.gov for up-to-the-minute information.
While side jobs have been around for eons, COVID-19 altered the landscape of traditional, permanent, and/or semi-permanent side hustles … possibly forever. For example, there is an increased interest in the gig economy for those who never thought of working independently, and the avenues for performing gig work are growing daily. For the first time, gig workers and independent contractors became eligible for state unemployment benefits during the height of the pandemic. And while those protections have since expired, it prompted many to consider the value of building this type of safety net for gig workers in a more permanent way.
There are a variety of definitions for gig workers, but if you are self-employed, working as an independent contractor, and/or massage or bodywork is but one revenue stream for you, then you are a gig worker. In fact, “massage therapist” was the highest paying gig economy job in 2020.1 By 2027, according to Small Business Trends, it is expected that almost half of the US population will have worked in the gig economy.2
So, What Is a Gig Economy?
According to the IRS,3 the gig economy (also referred to as a sharing or access economy) is activity where people earn income providing on-demand work, services, or goods. This includes massage therapy and other service-related fields, including:
- Driving a car for booked rides or deliveries (Uber, Lyft)
- Renting out property or part of it (Airbnb, Vrbo)
- Running errands or completing tasks (DoorDash, Instacart, Postmates, TaskRabbit)
- Selling goods online (Amazon, eBay, Poshmark, Etsy)
- Renting equipment (Rntrs, Fun2Rent, YourParkingSpace, ShareDesk)
- Providing creative or professional services (Fiverr, Upwork)
- Providing other temporary, on-demand, or freelance work (Freelancer, FlexJobs)
Is Gig Work Income Taxable?
Yes. If you earned $400 or more while working in the gig economy, you owe regular income tax on any monies earned. The IRS says you must report income earned from gig work on your tax return, even if the income is part-time, temporary, or side work; not reported on a return form (1099-K, 1099-NESC, 1099-MISC, W-2, or other income statements); and is paid in any form, including cash, property, goods, or virtual currency.4 Note that you’ll also have to pay self-employment tax, which amounts to 15.3 percent for your share of your Social Security and Medicare taxes.5
Can I Write Off My Gig Economy Expenses?
Yes, but the IRS requires adequate proof of your gig income, as well as the expenses you incur while working in the gig economy. For expenses, save your receipts. This will help you lower the amount of tax you owe. For income, keep complete records of any income you received while performing gig work.
What Types of Expenses are Deductible?
The IRS says a business expense must be both ordinary and necessary to be deductible and is one that is common and accepted in your industry.6 A necessary expense is one that is helpful and appropriate for your trade or business. But even though an expense may be ordinary and necessary, you may not be allowed to deduct the expense in the year you paid or incurred it. In some cases, you may not be allowed to deduct the expense at all.
Following is a list of deductions that may apply to your gig work:
- Self-employment tax payments
- Home office expenses
- Car expenses (including mileage)
- Educational expenses
- Licensing expenses
- Cell phone and internet expenses
- Office supplies
- Advertising
- Health insurance premiums
- Retirement plan contributions
- Start-up costs
- Rent
For a complete list and more in-depth information, see IRS Publication 535 at www.irs.gov/publications/p535#en_US_2020_publink100078332.
author bio
Lisa Bakewell is a full-time freelance writer and editor. Her areas of writing expertise span a multitude of topics. She can be reached at lbakewell@att.net.
Notes
1. Statista, “Highest Paying Gig Economy Jobs in the United States, Earnings Per Hour.”
Accessed February 2022, www.statista.com/statistics/1035454/gig-economy-highest-paying-jobs-us.
2. Gabrielle Pickard-Whitehead, “COVID and the Gig Economy—By the Numbers,” Small Business Trends, October 9, 2021, www.smallbiztrends.com/2021/10/covid-gig-economy-statistics.html.
3. IRS, “Gig Economy Tax Center,” updated December 1, 2021, www.irs.gov/businesses/gig-economy-tax-center.
4. IRS, “Gig Economy Tax Center.”
5. IRS, “Self-Employment Tax (Social Security and Medicare Taxes),” updated December 3, 2021, www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes.
6. IRS, “Publication 535 (2020), Business Expenses,” updated February 12, 2021, www.irs.gov/publications/p535#en_US_2020_publink100078332.