If you earned income of $600 or more and was not an employee of anyone, you may need to file a Schedule C
So, what is Schedule C?
Schedule C is the form the IRS accept to report Profit and Loss for businesses that are not incorporated,
or individuals that are self-employed. These individuals fall under the categories of Independent Contractor, Sole Proprietor or Non-Compensation Employee.
For Non-Compensation Employee, the IRS expect whoever is paying you to report what they pay you to the IRS. Form 1099-NEC is use to report payments made to you by the payee.
If you are a Independent Contractor, the IRS expect whoever is paying you to report your wages or payment to the IRS. The IRS use form 1099-MISC.
If you do not fall within these two categories, you are then a Sole Proprietor or Self-Employed.
The IRS expect you to report your earning using Schedule C.
The story we tell most of our clients especially retirees who volunteer their services at the Church or some charitable organization and the charitable organization decides to show appreciation by rewarding the individual with money i.e. payment of $600 or more. The charitable organization is now obligated to report such payment to the IRS by issuing you a 1099-MISC.
You will have to include the 1099-MISC with your taxes. You are now self-employed under the IRS rules.
You now have to file Schedule C – Profit and Loss from your business.
This does not make sense but that’s the rules. If you received a 1099 or are self-employed, you need to file Schedule C.
You will also need to file Schedule SE which stands for Self-Employment Tax. Basically, the $600 or more you received as an appreciation will now be tax and reported on Schedule SE.
This is one of those IRS rules that does not make sense and is burdensome.
Gig economy workers are all consider Schedule C filers. The IRS monitors these filings closely.
Let us first look at what is a Gig Work?
A gig work is a certain activity that you do to earn income, often through an app or website (digital platform), like:
- Drive a car for booked rides or deliveries
- Rent out property or part of it
- Run errands or complete tasks
- Sell goods online
- Rent equipment
- Provide creative or professional services
- Provide other temporary, on-demand or freelance work
- Note: This list does not include all types of gig work.
What are Digital Platforms?
Digital platforms are businesses that match workers’ services or goods with customers via apps or websites.
This includes businesses that provide access to:
- Ridesharing services
- Delivery services
- Crafts and handmade item marketplaces
- On-demand labor and repair services
- Property and space rentals
You now have to file Schedule C along with whatever form was issued to you by company that employ you. Ridesharing workers usually get form 1099-K.
Taxpayers must report gig economy earnings when filing taxes – Issue Number: Tax Tip 2022-07
Whether it’s a full-time job or just a side hustle, taxpayers must report gig economy earnings on their tax return. Understanding how gig work can affect taxes may sound complicated but, it doesn’t have to be. The IRS offers several resources to help gig economy taxpayers properly fulfill their tax responsibilities.
Here are some things gig workers should keep in mind.
Gig work is taxable:
- Earnings from gig economy work is taxable, regardless of whether an individual receives information returns. The reporting requirement for issuance of Form 1099-K changed for payments received in 2022 to totals exceeding $600, regardless of the total number of transactions. This means some gig workers will now receive an information return. This is true even if the work is full-time, part-time or if an individual is paid in cash.
- Gig workers may also be required to make quarterly estimated income tax payments and pay their share of Social Security and Medicare taxes.
Check worker classification:
- While providing gig economy services, it is important that the taxpayer is correctly classified.
- This means the business, or the platform, must determine whether the individual providing the services is an employee or independent contractor.
- Taxpayers can use the worker classification page on IRS.gov to see how they are classified.
- Independent contractors may be able to deduct business expenses, depending on tax limits and rules. It is important for taxpayers to keep records of their business expenses.
Pay the right amount of taxes throughout the year:
- An employer typically withholds income taxes from their employees’ pay to help cover income taxes their employees owe.
- Gig economy workers who are not considered employees have two ways to cover their income taxes:
- Submit a new From W-4 to their employer to have more income taxes withheld from their paycheck, if they have another job as an employee.
- Make quarterly estimated tax payments to help pay their income taxes throughout the year, including self-employment tax.
The Gig Economy Tax Center on IRS.gov answers questions and helps gig economy taxpayers understand their tax responsibilities.
Publication 5369, Gig Economy and your taxes: things to know
Publication 1779, Independent Contractor or Employee
Is My Residential Rental Income Taxable and/or Are My Expenses Deductible?