<p><img src="https://static3.businessinsider.com/image/5e176b31f442314fb752c962-1499/ap613172016860.jpg" border="0" alt="Lyft driver" data-mce-source="AP/Brennan Linsley" data-link="http://www.apimages.com/metadata/Index/Regulating-Ridesharing/4299d5edeec84715bd913bcf6a8fb418/17/0"></p><p></p><bi-shortcode id="summary-shortcode" data-type="summary-shortcode" class="mceNonEditable" contenteditable="false">Summary List Placement</bi-shortcode><ul class="summary-list"><li>Gig workers must pay federal income taxes, and a 15.3% self-employment tax on earnings above $400.</li><li>This includes driving for Uber or Lyft, delivering food or groceries, or selling goods online.</li><li>Like any other self-employed person, gig workers can lower the income tax they owe by claiming relevant expenses.</li><li><strong>This article was reviewed for accuracy and clarity by</strong><a href="https://michelecagancpa.com/" target="_blank" rel="noopener" data-analytics-module="summary_bullets" data-analytics-post-depth="0"><strong>Michele Cagan</strong></a><strong>, an expert on Personal Finance Insider's</strong><a href="https://www.businessinsider.com/personal-finance/tax-review-board-experts" target="_blank" rel="noopener" data-analytics-module="summary_bullets" data-analytics-post-depth="0"><strong>tax review board</strong></a><strong>.</strong></li><li><strong><a href="https://www.businessinsider.com/what-is-best-tax-software" target="_blank" rel="noopener" data-analytics-module="summary_bullets" data-analytics-post-depth="0">See Personal Finance Insider's picks for the best tax software </a></strong></li></ul><p>The gig economy is integral to millions of Americans' livelihoods, and the IRS is itching to take its share.</p><p>The IRS says the gig economy includes any "activity where people earn income providing on-demand work, services or goods," such as ride-sharing and delivery services, running errands, and selling products online. That means if you earned money from Uber, Lyft, Postmates, Instacart, Etsy, or a similar company, you may be on the hook for federal income taxes.</p><p>That's because the IRS requires that anyone earning non-W-2 income from a job be classified as an <a href="https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee" target="_blank" rel="noopener">independent contractor</a>, even if they also hold a job as a W-2 employee. These contract workers are subject to the 15.3% self-employment tax and <a href="https://www.businessinsider.com/personal-finance/what-tax-bracket-am-i-in-federal-income-tax" target="_blank" rel="noopener">federal income tax</a> on their additional income, which they can pay through estimated <a href="https://www.businessinsider.com/how-to-pay-quarterly-taxes-business-owner" target="_blank" rel="noopener">quarterly taxes</a>.</p><h2><strong>How to pay taxes on gig economy income</strong></h2><p>As it relates to the 2021 tax seasonwhen you file taxes for income earned in 2020the business(es) that paid you for on-demand work may send forms to the IRS to report those payments depending on how they classify and pay workers. Common forms include <a href="https://www.irs.gov/forms-pubs/about-form-1099-nec" target="_blank" rel="noopener">1099-NEC</a> (Nonemployee Compensation) and<a href="https://www.irs.gov/pub/irs-pdf/f1099k.pdf"> 1099-K</a> (Payment Card and Third Party Network Transactions).</p><p>The IRS says businesses are required to file a 1099-NEC form for workers who they paid more than $600 throughout the year. (Note that this income was previously reported on Form 1099-MISC.) You should receive copies of these forms by early February, which you can use to file your 2020 tax return.</p><p>If you don't receive these forms, you'll need to rely on your own payment records to report all net income earned from temporary or part-time sourcesincluding cashon your tax return. You'll have to pay income taxes on your net earnings (your gross income minus any related expenses). Plus, if your net earnings are more than $400, you'll also be responsible for self-employment tax on that amount.</p><p>If you plan to continue earning income from side jobs in 2021, make sure you know the due dates for paying<a href="https://www.businessinsider.com/when-are-quarterly-taxes-due" target="_blank" rel="noopener"> quarterly taxes</a> so you don't get slapped with penalties or a huge bill next year.</p><h2><strong>How tax deductions work for gig workers</strong></h2><p>Don't forget that gig workers are classified as independent contractors by the IRS, which means they're entitled to tax benefits for the self-employed.</p><p>As a gig worker, you'll need to report all your income to the IRS, but you can also reduce the amount of taxes you pay on that income by claiming relevant deductions. And if the expenses turn out to be more than the incomemeaning your "business" had a lossyou can deduct that loss against your other income.</p><p>Generally, an independent contractor can <a href="https://www.irs.gov/businesses/small-businesses-self-employed/deducting-business-expenses" target="_blank" rel="noopener">deduct any expenses</a> that are considered "ordinary and necessary" for their trade or business. This might include insurance, state and local taxes, interest, travel, and phone or office supplies associated with operating and maintaining your business. It can also include the cost (or partial cost) of a<a href="https://www.businessinsider.com/personal-finance/claiming-home-office-tax-deduction-work-from-home-2020-4" target="_blank" rel="noopener"> home office</a> or car that is used for conducting business.</p><p>Also, as a self-employed worker you can deduct the employer portion of the self-employment tax7.65% of your net earningsfrom your gross income to arrive at your <a href="https://www.businessinsider.com/personal-finance/what-is-adjusted-gross-income-agi-taxes" target="_blank" rel="noopener">adjusted gross income</a> (AGI). And you may be eligible to deduct 100% of the cost of your health insurance premium from your AGI if you're not covered by another employer's plan.</p><p>For more information on filing your taxes as an independent contractor, check out the <a href="https://www.irs.gov/businesses/gig-economy-tax-center" target="_blank" rel="noopener">Gig Economy Tax Center</a> page on the IRS website.</p><div><iframe src="https://smartasset.com/captivate/frame/ucznodjd" width="100%" height="650px" scrolling="auto" style="border: none;"></iframe></div><ul class="read-more-links"><li><bi-shortcode id="related-content-module" class="mceNonEditable" data-type="more-tax-coverage" data-sheetname="More Tax Coverage">Related Content Module: More Tax Coverage</bi-shortcode></li></ul><p><a href="https://www.businessinsider.com/personal-finance/how-to-pay-taxes-on-side-jobs-income-irs#comments">Join the conversation about this story »</a></p>
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