Freelancers now make up 35% of U.S. workforce and collectively earned $1 trillion in the past year, according to Forbes. Working in the on-demand economy provides a lifestyle many of us crave – a lifestyle that allows you to work on your terms. So what exactly does this mean financially for a gig worker? And what does it mean for your taxes? First, let’s define who’s a 1099 worker and outline the differences between 1099 workers and W-2 employees.
What exactly does 1099 mean?
The W-2 tax form is for an employee, while the 1099 form is reserved for workers who are independent contractors. The 1099 form is intended for any and all workers that don’t fall in the category of “employee” as they perform contract work, which can be sporadic. Many on-demand workers qualify as 1099 workers and must report their income, as well as pay Social Security and Medicare taxes on it. In contrast, employers contribute half of the Social Security and Medicare taxes for employees. As an independent contractor that earns income, you need to report if you have an income of $600 or more on the 1099-Misc form. If your gross pay is more than $20,000 in the tax year, then you need to fill out Form 1099-K.
What kind of expenses can you deduct?
Make sure you track your expenses and use the amount that goes toward generating income to offset that income. Any ordinary and necessary expenses needed in your freelance work can be deducted. It is important to keep track of related expenses throughout the year. Understand which expenses are eligible for deductions, especially those that may be unique to your line of work.
What are some other deductibles?
You can write-off health insurance premiums as an adjustment to your income. You can also deduct any retirement contributions, dependent on your plan and income.
There are a lot of benefits to working in the on-demand economy. But, we’ll admit, it does get a bit confusing when it comes to taxes. Though we are not an official resource to ask for help with taxes, we hope to clear a few things up the best we can. We care about our Community Members and want to give them the best advice possible for making it in the on-demand economy.
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