The Tax Man is Catching Up with "Gig Economy" Workers

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U.S. District Judge Dolly M. Gee for the Central District of California found that there is a reasonable basis for believing that U.S. taxpayers who were paid by JustAnswer to answer questions as experts may have failed to comply with federal tax laws.

A Las Cruces Digest Report
Sources: U.S. Department of Justice, Internal Revenue Service

It was as sweeping decision when a Federal court in California entered orders which authorized service of “John Doe” Summons to JustAnswers LLC this past Monday. JustAnswer operates a digital platform through which members of the public can pay to have questions answered by professionals such as doctors, lawyers, veterinarians, engineers and tax professionals. It is an example of a business built on the “gig economy”.

“The gig economy is where people earn income providing on-demand work, services or goods through a digital platform like a website or an app. Well-known examples of such platforms include Airbnb, Uber, Lyft, DoorDash, Etsy, Handy and TaskRabbit. The gig economy is a recent phenomenon associated with the increased prevalence of smart phones and their applications, facilitating the development of online marketplaces and platforms in which individuals can connect to obtain and offer goods and services. Digital platforms commonly serve as intermediaries, connecting sellers or service providers with customers while also processing payments.” (DOJ News Release, December 26, 2024)

The gig economy is a relatively recent phenomenon brought about by the massive progress made by, and ubiquitous adoption of, the digital landscape that has become these United States. Because of its nascence, there may have been confusion about the tax responsibilities, or there may have been the belief that the Tax Man would never catch up. Monday’s ruling makes moot those beliefs. “In the court’s order, U.S. District Judge Dolly M. Gee for the Central District of California found that there is a reasonable basis for believing that U.S. taxpayers who were paid by JustAnswer to answer questions as experts may have failed to comply with federal tax laws.” (DOJ)

The Tax Man cometh.

How to Manage taxes for your gig work (according to the I.R.S.)

You must file a tax return if you have net earnings from self-employment of $400 or more from gig work, even if it’s a side job, part-time or temporary.

You must pay tax on income you earn from gig work. If you do gig work as an employee, your employer should withhold tax from your paycheck. If you do gig work as an independent contractor, you may have to pay estimated taxes. Unsure if you are an employee or independent contractor? Ask your employer or check your worker status.

What is gig work?

Gig work is certain activity 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 to do

Here’s how to manage taxes for gig work as an independent contractor (self-employed):

Keep Records

Collect and keep your records and receipts during the year. Recordkeepingcan help you track your income, deduct expenses and complete your tax return.

Expenses — Save receipts of your expenses. You can lower the amount of tax you owe by deducting certain expenses. (See Get Ready to File below.)

Income — Keep records of money you receive from gig work and sales. You must report all income on your tax return, even if you don’t receive Forms 1099 from the businesses that pay you.

For more guidance:

Pay Estimated Tax

If you earn money for gig work as an independent contractor, you may have to pay quarterly estimated taxes. You can avoid a penalty by paying enough tax on time.

Do you work as an employee and do gig work on the side? You may avoid making estimated tax payments on your gig income by withholding more tax from your employee paycheck. Use the Tax Withholding Estimator. Then fill out a new Form W-4, Employee’s Withholding Certificate and give it to your employer.

When to pay — Estimated tax payments are due four times a year:

April 15 for payment period January 1–March 31
June 15 for payment period April 1–May 31
September 15 for payment period June 1–August 31
January 15 for payment period September 1–December 31

Note: If these due dates fall on a Saturday, Sunday or legal holiday, the payments are due the next business day.

How to pay — Pay online or by mail or phone (refer to Form 1040-ES).

How to estimate — Use one of these forms to figure your estimated taxes:

For comprehensive information on paying estimated tax including exceptions, the underpayment penalty and methods to figure amount of payment, review Publication 505, Tax Withholding and Estimated Tax.

Get Ready to File Your Taxes

Collect income forms — The businesses you work with may send forms to the IRS to report payments made to you. If they do, you should receive copies of the forms by January 31. These may include:

Include all income — Use your sales receipts to report any payments not reported to you on a 1099 or W-2.

Subtract your expenses — You can lower the amount of tax you owe by deducting certain expenses. For more information, review:

Find information on tax filing:

Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C)

File Your Tax Return

To file your tax return as an independent contractor (self-employed), use the records you gathered (see Keep Records above) and fill out these forms:

Did you forget to report income from gig work? To correct a return you already filed, use Form 1040-X, Amended U.S. Individual Income Tax Return.

File your tax return — Choose a filing option:

IRS Free File — Use free tax prep software or fillable forms based on your income and the forms you must file.
Volunteer Income Tax Assistance site — Get free, in-person filing help near you.
Authorized e-file provider — Search the list of tax professionals approved by the IRS for e-filing.
File your return by mail — Find addresses by state to mail your tax return.

Article posted by:

Levi Gwaltney

Levi Gwaltney is the Editor In Chief of Las Cruces Digest. The Editor makes editorial and posting decisions regarding content published on this site. In most cases, the Editor makes little if any contribution to content published, and takes no credit for the content of republished posts. If available, the source or author of posts is provided at the top of the article.

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