Tax Rules for The Gig Economy

written by Jay Logal

What is the Gig Economy?

The Gig Economy is about sharing. It makes use of technological advances so that individuals can arrange transactions, often over the internet, to generate revenue. Whether that is leveraging existing assets such as their home and car or providing services such as deliveries and household chores.

Tax Consequences

The Internal Revenue Code requires us to include compensation for services, realized in any form, in our gross income. Although you will likely not receive a 1099, W-2 or other form of income statement, monies or benefits you receive through a Gig Economy relationship or agreement should be reported by you on your income tax return.

Barter Transactions

You should also report exchanging services for the services of another (barter transactions). If you barter your services for someone else’s services, the value of their services is income to you. An example of this can be illustrated as follows: You perform services such as cleaning, and you have a friend who performs the service of grocery shopping, and you clean in exchange for her shopping you should include in your gross income the value of her shopping for you.

Other Tax Implications

It is likely that you will be recognized by the IRS as an independent contractor instead of an employee. Being treated as an independent contractor allows you to take expenses (such as mileage) you incur that are related to these sharing arrangements directly against the income you received, thereby decreasing the amount upon which you pay tax. The down side is that as an independent contractor you will be subject to self-employment tax. Self-employment tax is your payment into the Social Security and Medicare system. An employee shares that cost with their employer and it is withheld from the employees’ wages. As an independent contractor you will have to pay the employee and employer portion and plan for this cost without the benefit of having it withheld.

State and Federal Taxes

Most states build their income tax return starting with your federal adjusted gross income. As a result, earnings you receive from these sharing transactions will typically be taxable at the state level. Most states also charge sales tax. Some states charge sales tax on services. For those states, it is possible that you will have sales tax collection and remittance requirements. These rules are complex, and I would recommend contacting your tax advisor to help you navigate them.

If you don’t have a tax advisor, contact us at The Whitlock Company. It would be our pleasure to help you work through these types of arrangements 417-881-0145.