No matter what you call it — gig work, side hustle, freelance — if you earn income of $400 or more in a year, you'll have to pay federal taxes on those earnings, along with contributions to Social Security and Medicare.
Figuring out what you owe can be especially tricky if you just started doing gig work, if you haven't kept good records or if you haven't set aside money during the year to cover your annual tax bill.
These tips from the Internal Revenue Service (IRS) can help you complete your taxes if you're a gig worker and if you earn income from work that may not provide you with a W-2 or 1099 tax form at the end of the year.
What counts as gig work?
Roughly 57 million people a year do gig or freelance work in the United States, according to research firm Statista. Part of the reason so many Americans fit into this category is that the range of jobs that fit this description is so broad. Many gig opportunities use smartphone apps or websites to connect you with people who want to pay you for goods or services. But short-term work that you find on your own could also be considered gig work. In general, these jobs include (but certainly are not limited to) some of the following:
- Driving people or deliveries in your car;
- Selling products or crafts online;
- Renting your home or other property for short-term use;
- Using your skills and experience to provide temporary, contract or freelance work;
- Running errands, dog walking or providing similar services for others;
- Renting out your car or other equipment.
I do gig work, but I also got some unemployment benefits in 2020. Do I have to pay taxes on those benefits?
In general, you would, but there is a big exception for 2020. Thanks to stimulus legislation passed in March, if you earned less than $150,000 in adjusted gross income (AGI) last year, you won't have to pay federal income taxes on the first $10,200 you received in unemployment benefits. According to the Century Foundation, 40 million people collected unemployment benefits in 2020, with the average amount totaling $14,000.
Even better, the IRS recently announced that you can exclude that $10,200 altogether when you're figuring out your modified AGI. That means that some people who may have passed the $150,000 threshold for eligibility may now qualify for that $10,200 unemployment-benefits exemption. On March 31, the IRS announced it would automatically provide refunds to any eligible individuals who filed their 2020 taxes before this deduction took effect in mid-March. The agency says eligible individuals should expect those refunds to arrive starting in mid-May and continuing through the summer.
You should receive a 1099-G tax form telling you the total amount you received in unemployment benefits.
Both the Pandemic Unemployment Assistance program — which made gig workers nationwide eligible for unemployment benefits — and the $10,200 tax-free exception were created by federal pandemic relief legislation. That means it's not completely clear how gig workers should plan for the 2021 tax year. Enhanced unemployment benefits have been extended through Sept. 6, 2021, but the $10,200 tax break is currently available only for benefits collected in 2020.
One note: As always, you don't have to pay Social Security and Medicare taxes on unemployment benefits.