The IRS sent out a friendly reminder this week that your side hustle money is taxable, in case you were wondering.
The IRS stated in a document published on its website on June 27 that “gig economy revenues are taxable, regardless of whether an individual receives information returns.”
When you work as an employee for a business as part of your side hustle, your employer will normally deduct income taxes from your salary, including FICA taxes to pay for Social Security and Medicare. In this scenario, a Form W-2 will be given to you.
Companies who pay you for gig work are required to send you a Form 1099-K if you are a freelancer or independent contractor and no taxes are deducted from your salary. However, regardless of the total volume of transactions, this only applies if your total income from a certain company in 2022 exceeded $600.
You might not get a Form 1099-K or any other information return for 2022 as a result of the regulations.
So that you can submit an appropriate return the following tax season, it is up to you to maintain track of all of your side hustle income throughout the tax year. The ideal approach is to record all side job payments you get throughout the tax year in a spreadsheet or other ledger.
The IRS recommends the following advice to make sure you stay on top of your side job income and tax obligations:
To help them pay their income taxes, including self-employment tax, throughout the year, gig workers may be obliged to submit quarterly anticipated tax payments.
This holds true for both state and federal income taxes in the majority of states. To assist you in deciding how much to withhold, the IRS offers a Tax Withholding Estimator on its website.
Self-employed gig employees are required to pay all Social Security and Medicare taxes on their earnings from the gig.
There are two options for gig economy workers who aren’t considered employees to pay their income taxes:
If they have another work as an employee, they must submit a new Form W-4 to their employer so that more income taxes would be deducted from their compensation.
Make approximated tax payments every quarter.
Make sure you are correctly categorised as a taxpayer, such as an independent contractor or employee. To determine how you should be classified, use the IRS.gov worker classification website.
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Depending on the tax limitations and regulations, independent contractors may be eligible to deduct business expenses. Therefore, it’s crucial to document both your personal and commercial costs.
Gig workers may be required to make quarterly expected tax payments to assist them in paying their income taxes, including self-employment tax, throughout the year.
In the majority of states, this is accurate for both state and federal income taxes. On its website, the IRS provides a Tax Withholding Estimator to help you decide how much to withhold.
Self-employed gig workers are obligated to pay all Social Security and Medicare taxes on their gig earnings.
