An Overview of 1099 IRS Tax Requirements for Gig Workers

Whether you hire gig workers or you moonlight as a gig worker, knowing your tax requirements is crucial!

The gig economy is here to stay, and not only that, but it is constantly growing and changing. So many of our daily tasks are being shaped by the gig economy, and the companies that have emerged are now household names.

Just think about it: you don’t just hail a cab anymore, you probably use a ridesharing app. You probably don’t bring cash to an outing with friends or family anymore because you can send them your share through an app. Why pick up your own takeout when you can get it delivered with a few clicks?

If you’re relating to this, you are either supporting gig workers or you may be a gig worker. Taxes are already a daunting task, but with the rise of gig work, how does this affect income and tax returns? 

Keep reading for an insightful look at the gig economy and where IRS requirements come into play!

What is the Gig Economy?

The gig economy is precisely that—a group of workers who have the flexibility to work on their terms and earn extra income. Apart from providing ‘on-demand’ services, the gig economy also encompasses selling goods via online marketplaces.

So, what distinguishes the gig economy from freelancing? In the gig economy, all services and goods are offered through digital platforms, such as apps or websites. Freelance workers often operate under specific terms and contracts, while gig workers enjoy greater flexibility and autonomy. 

What is considered ‘Gig Work’? 

While gig workers are typically thought of as part-time, that is not always the case, gig work can also be done on a full-time basis. Some gig workers may even choose to work part-time doing a few different types of gig work. The common denominator of all gig work is its flexible, on-demand nature. 

Here are some examples of gig work and the types of companies that provide these jobs.

  • Delivery Services: This can range from placing an order on Doordash to ordering grocery delivery through Instacart. 
  • Online Marketplaces for Creative Goods: Companies like Etsy have risen in popularity by providing an online platform for selling unique crafts and homemade goods. 
  • On-Demand Labor and Repair Services: If you’ve ever purchased furniture from a certain big-box Swedish company, you may have also used a service like  TaskRabbit and contracted a gig worker to assemble it.
  • Property and Rentals: Have you ever planned a trip and booked a home or condo? If so, you’ve probably heard of Airbnb or VRBO. 

How are Gig Workers Taxed?

Great question! If an individual works for a company, they must be an employee, right? No, this is actually not the case for the vast majority of gig workers. Gig workers are generally taxed like independent contractors, this means that the company they work for should issue them a 1099 form

Depending on the amount of income an individual generates doing gig work, they may also be required to make quarterly estimated tax payments to the IRS. For example,  gig workers who are considered self-employed have to pay all the Social Security and Medicare taxes on their gig income.

When companies onboard gig workers as independent 1099 contractors, they should request a Form W-9 from the individual. This form is designed to capture the individual’s legal name, address, and Taxpayer Identification Number (TIN). This information is crucial for the company to be able to issue independent contractors a 1099 at the end of the year. 

If someone doesn’t give the company their correct TIN (Taxpayer Identification Number), backup withholding rules may apply. If the business tries twice to get the independent contractor’s TIN and doesn’t get it, they’ll have to withhold 24% from the payments they make and send that amount to the IRS until the right TIN is provided.

In the case of ride-sharing, gig workers who use their car for both personal and business transportation can deduct expenses that apply only to business use. 

1099 Tax Filing Requirements for Gig Workers

Income earned from gig economy work is subject to taxation, regardless of whether individuals receive information returns. The IRS requires gig companies to file Form 1099-K for gig economy workers if their income surpasses $600 and is received through various means, including credit card transactions, cash, property, goods, or virtual currency. 

Additionally, individuals who earned more than $600 through cash or direct deposit will receive Form 1099-NEC. Gig workers might also get  Form 1099-MISC if they have received any miscellaneous payment such as rewards, prices, or health care payment through cash or direct deposit. These 1099 reporting requirements for gig workers ensure transparency and allow independent contractors to report their income accurately to the IRS on their own income tax returns. 

Filing Requirements for Companies that Hired Gig Workers

On the flip side of this, gig workers cannot report their income accurately without the business providing them with a 1099 detailing all of the payments. This is why requesting W-9 Forms is a crucial component of the process because it ensures that all the information needed to file and distribute the gig worker’s 1099 at the end of the year. 

The business that hired and made payments to the gig worker for their services should file the correct 1099 form depending on how the payments were made.

Deadlines to File Forms 1099-NEC, 1099-K, and 1099-MISC

Form  1099Paper Filing DeadlineE-filing DeadlineRecipient Copy Deadline
1099-NECJanuary 31stJanuary 31stJanuary 31st
1099-KFebruary 28thMarch 31stJanuary 31st
1099-MISCFebruary 28thMarch 31stJanuary 31st

TaxBandits’ 1099 E-filing Solution for Gig Work

TaxBandits provides a complete solution for collecting TIN information, verifying TIN information, and e-filing 1099 forms. If you are enjoying the benefits of hiring gig workers, but experiencing the drawbacks that come with the additional tax filing requirements, look no further than TaxBandits. We streamline the process with these awesome features. 

  • A W-9 Manager that allows you to request, collect, verify, and store Form W-9 in one secure location.
  • Multiple options for bringing your 1099 data into TaxBandits, including manual entry, bulk upload, integrations with popular accounting software (QB, Xero, etc.), and an API option. 
  • Prepare accurate 1099 forms with the help of TaxBandits’ built-in error checks using the IRS Business Rules
  • TaxBandits supports e-filing with the IRS and required states. 
  • To eliminate the burden of distributing recipient copies, TaxBandits provides postal mailing and e-delivery options. 

Automate 1099 filing with TaxBandits API

Would you prefer to automate your W-9 collection and 1099 filing process? TaxBandits API  is a great option for your organization, it allows you to automate this process with accuracy and efficiency. Here’s a quick overview:

  • You can collect your gig worker’s Form W-9 during the onboarding process either by triggering an email request or adding a secure link to your existing vendor portal. 
  • The TaxBandits 1099 transaction API tracks the payments that are made to the gig workers.
  • TaxBandits uses the W-9 information and the transaction history to generate 1099 forms for all applicable gig workers. 
  • The 1099 forms are checked using the IRS Business Rules, and the TINs are validated using the SSA database. You can edit, review, and approve the forms before they are e-filed with the IRS and required states. 
  • Take advantage of postal mailing and secure online access options for distributing form copies. 

There you have it, a comprehensive overview of what the IRS requires from gig workers and the businesses that hire them! Ready to begin your journey to IRS tax compliance with TaxBandits? Create your free account today. 

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