What Is a Gig Worker?

Gig workers, otherwise known as independent contractors, complete jobs on a contractual basis. They have the autonomy to choose when and where they work, have control over work instructions, evaluate their own work, and are well versed in the job they’re hired to complete. Their behavioral control is unlike employees who are told when and where to work, how to work, and who may require job training.

Independent contractors also provide their own equipment, can seek other business opportunities, and are paid a flat fee for their services. However, the flat fees paid to gig workers are not pre-taxed. Employers withhold taxes from W2 employees, but not 1099 gig workers. It is the responsibility of the independent contractor to set the correct amount of money aside for taxes each year.

The Employment Development Department (EDD) created a questionnaire to help employers correctly classify employees and contractors from each other because misclassification can lead to EDD audits, leading to fines and penalties. 

When is Tax Season?

Filing taxes for gig workers occurs four times a year on a quarterly basis. It’s required by any self-employed person making at least $400 through gig work—no matter if it’s part-time, temporary, or full-time employment. Paying these fees in full and on time avoids penalties and fines associated with late or avoided payments. 

Quarterly tax dates occur on: 

• April 15th for payments between January 1st-March 31st 
• June 15th for payments between April 1st-May 31
• September 15th for payments between June 1st-August 31st 
• January 15th for payments between September 1st-December 31st

Any tax dates that fall on a weekend or legal holiday push the payment due date to the next business day. Payment is accepted online through the IRS website, by mail or on the phone. Form 1040-ES or the Tax Withholding Estimator helps independent contractors figure out how much tax payments may be.

What Forms Do Gig Workers Need to Fill Out?

Gig workers fill out 1099 forms, not W2 forms. Ensure you are filing the right documents in a timely manner to prepare for taxes owed. 

Form 1040-ES

This form helps independent contractors estimate taxes owed. The independent contractor fills out the form themselves to understand their own taxes owed. It is not filled out by the business they partner with. The estimated taxes form should report all payments that were not tax withheld to create the most accurate reflection of taxes owed.

Form 1099-K

According to IRS, “a form 1099-K includes the gross amount of all reportable payment transactions.” This includes any type of card payment or any third party network transaction more than $200,000 or over 200 separate transactions. It reports business income to help accurately calculate taxes owed when filing.

Form W-9

Independent contractors fill out W-9 forms and provide them to the business they are hired by before beginning services. It can be shared quickly to multiple employers because the information stays relatively consistent. 

The document reports information about the gig worker such as:

• Full name 
• Employee Identification Number (EIN) 
• Address
• Taxpayer Identification Number (TIN) or SSN 

This form helps employers hiring the independent contractor verify employment status along with providing correct tax forms.

Form 1099-MISC

The 1099-MISC reports miscellaneous income for trades or businessses that gained a profit. It does not include reporting for personal payments or payments that are not subject to self-employment taxes. Types of payments that can be reported on the 1099 MISC are payments of over $600 for rent, other income payments, medical and healthcare payments and more.

Form 1099-NEC

This form is filled out by business owners reporting nonemployee compensation of any payment made over $600 to independent contractors. Nonemployee compensation includes:

• Fees
• Benefits
• Commissions
• Any compensation business grant to nonemployees 

How Can Gig Workers Prepare for Tax Season?

IRS recommends the following steps for independent contractors looking to stay on top of tax filings.

• Keep detailed records of expenses and income. 
• Pay the estimated taxes owed on a quarterly basis. 
• Collect income forms to prepare for filing. 
• File the correct tax returns on time to avoid penalties.

By January 31st of each year, previous employers should send 1099 forms indicating payments made to the independent contractor for the previous year. Organize these files to help fill out the correct tax files. 

Remember that business expenses can be deducted from the total taxes owed. Keeping detailed records of receipts for said expenses ensures proper payment, and helps avoid triggering an audit of your tax forms. 

Another factor self-employed independent contractors must keep in mind is self-employment taxes. Gig workers must pay income taxes along with 15.3% self-employment taxes that cover Social Security and Medicare taxes since these are not withheld by the employer like they are for W2 employees. 

Employers and W2 employees split Social Security and Medicare taxes, and end up paying for half each. However, independent contractors can use a tax deduction for half of the self-employment taxes. 

Filing taxes in a timely manner avoids the 5% late penalty per late month and the potential for being flagged for an audit.

Wondering if you are correctly classified as a W2 employee or a 1099 gig worker? Verify your status with a got1099 report. We provide verification, and proper classification to employers and employees to help avoid triggering an audit. Knowing proper verification helps you understand which tax forms to file properly, and avoid major fines and penalties