How Working in the “Gig” Economy affects your Taxes
- Steve Julal
- Jul 9
- 3 min read
Updated: Jul 16
Whether you drive for a rideshare company, deliver food, sell jewelry online, or do any other freelance or side work — the gig economy gives you freedom and flexibility. But it also comes with tax responsibilities that can surprise you if you’re not prepared.
You’re the Boss and the Bookkeeper
If you're working a side gig, you're most likely an independent contractor, not an employee. Meaning, the company you're working with won’t take out taxes from your paycheck, and instead, you’re in charge of keeping track of your income and paying your own taxes including income tax, Social Security, and Medicare.
Understanding your Tax Status
As an independent contractor, your earnings are considered or “classified” as self-employment income. This status has specific tax consequences and responsibilities, including the need to file Schedule C (Profit or Loss from Business) with your tax return and pay self-employment tax using Schedule SE.
Self-Employment Tax
Self-employment tax covers Social Security and Medicare taxes for those who work for themselves. This year, the self-employment tax rate is 15.3% (12.4% for Social Security + 2.9% for Medicare). For net earnings exceed $400 for the year, this tax is required, regardless of your age or whether you receive Social Security benefits.
**Note: Self-employed individuals can deduct half (the employer-equivalent portion) of the self-employment tax from their taxable income, which helps offset the burden.
State and Local Taxes
Depending on where you live, your state may also collect income tax. Some states don’t — like Florida, Texas, and Washington — but others (like California and New York) may have extra requirements, like business licenses or special forms for self-employed workers. Be sure to check what’s required where you live so you’re not caught off guard.
Track, Record, and Keep
Tracking your income and expenses is key. Form 1099-NEC reports all income received by freelancers, or “gig” workers earning $600 or more from one source. Even if you don’t receive a 1099 form, you’re still required to report all your income to the IRS. Keep track of all your income and utilize bookkeeping platforms or spreadsheets for accuracy and organization.
Being classified as a “gig” worker allows you to reduce your taxable income through tax deductions of many business-related expenses that aren’t accessible to employees otherwise. Common deductions include eligible:
Mileage and maintenance expenses related to work
Home office expenses
Advertising and marketing costs
Professional services (e.g. tax or legal advice)
Make sure you keep receipts and records to substantiate these deductions in case of an IRS audit.
Stay Compliant
To stay on top of your tax responsibilities, here are four tips to consider:
Set aside 25% – 30% of your income for taxes
Track your income and expenses using an accounting software or spreadsheet for accuracy and organization
File your taxes on time and respond promptly to all IRS correspondences
Understand your tax situation PRIOR to filing. Identifying your potential deductions and liabilities will save you time in the long run.
Plan Ahead for the Best Results
While the gig economy can be rewarding, it also comes with many tax responsibilities that “solo-preneurs” should be mindful of. By understanding your obligations, tracking your earnings and expenses, and making timely payments, you can avoid penalties and keep more of what you earn.
If you’re unsure where to start, we’re here to help. Have a quick question? Reach out anytime. Need a deeper dive? Schedule a 30-minute session and we’ll walk through it together.
