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Freelancer, Sharing Economy Income and Taxes


According to a recent survey1, there are an estimated 56.7 million freelancers in the U.S. gig economy alone. Freelancers represent 1/3 or 33% of all U.S. workers. The number has increased by 3.7 million over the last five years. Learn more about what defines an independent contractor or a freelancer. Perhaps as a result of the COVID-19 Pandemic, many companies are hiring on contract that way freelance workers can work remotely and claim certain self-employment deductions. This makes it easier to set up employment and to work from home, especially if located in a different state than the employer (for example, they would only file a resident state return and not an additional state return for the company location).

Freelancers and the Gig Economy

When small to large businesses rely mainly on freelancers or independent contractors compared to permanent employees, then gig refers to a one-off job a person gets paid to do on an infrequent or casual basis. Thus, the income generated in a gig or sharing economy is treated very similar to taxable income as an independent contractor or freelancer. The payer issues a Form 1099 for the tax year in which the work took place and submits it to the payee (freelancer, independent contractor) by January 31 of the subsequent year.

Typically, freelancers do not register a business. For tax purposes, however, according to the IRS, a freelancer declares their self as self-employed. As such, they technically are their own business - when you prepare your return on eFile.com, you can report your business/self-employment income and the eFile Tax App will report your income on Schedule C and generate Schedule SE for you. You bring your income and business information and we will help get it reported on the proper forms for you.

The following factors determine the independent contractor status:

  • Work remotely at their own location, time
  • Work often with more than one client
  • Negotiates rates with the payer
  • Estimates and pays self-employment taxes
  • Is eligible for certain tax deductions (mileage, travel expenses, etc.)
  • Does not hire employees.

Often, when organizations try to avoid paying benefits, they shift permanent jobs into temporary jobs, thus these employers/employees are also considered part of a gig economy. However, in comparison to freelancers, part-time workers receive a paycheck as payment and the annual income is reported to the employee and IRS on a W-2 form by January 31 of the subsequent tax year.

In a sharing economy, goods and services are distributed differently in comparison to the traditional model of corporations hiring employees and selling products to consumers. Instead, consumers rent or share things like their cars, homes, and personal time to other individuals in a peer-to-peer manner. Sharing might include the following: renting, borrowing, lending, swapping, or bartering. Companies like Etsy, Doordash, Uber Eats, Airbnb, Flipkey, HouseTrip, HomeAway, Lyft, and Uber are just a few that are part of the new gig or sharing economy.

The following table organizes and explains various topics related to gig or sharing economy income.

Income Statement
You should receive one of these income statements: Form 1099-MISC (Miscellaneous Income) or NEC (Nonemployee Compensation), Form 1099-K, Payment Card and Third Party Network Transactions, Form W-2, Wage and Tax Statement, or some other income statement, especially if you operate in a foreign country. Even if you don't receive any of these statements, your income is most likely taxable and will need to be reported. Overview of taxable income.
Expense Deductions, Depreciation
Expenses must be ordinary and necessary: business-related food, lodging, office expenses, home office deduction, required equipment or materials, supplies, cell phones, auto expenses, food and drinks for passengers, parking fees, tolls, roadside assistance plans, permit fees, professional education expenses, taxes, and incentives associated with certain electric and hybrid vehicles. Depreciation is a tax deduction for wear and tear and deterioration of property with a life longer than one year. It is an annual allowance that lets you recover, over time, the cost or other basis of certain property you own. The kinds of property you can depreciate include machinery, equipment, computers, buildings, vehicles, and furniture.
Home Rental Rules
Calculating rental Income from home or vacation properties can get complex in the sharing economy. Please click and view the current home rental rules by tax year.
Tax Estimates
Independent contractors in the gig economy will have to make tax estimate payments to the IRS and maybe their respective state tax agency. However, if your gig or shared economy income is only a portion of your entire income, e.g. W-2 from you or your spouse, we suggest you use the free eFile.com Taxometer to estimate your tax withholding based on your personal tax return goals. If you need to make independent tax estimate payments, use Form 1040-ES for the given tax year or pay online.
You can estimate your tax return for the current or previous tax year here on eFile.com for free. We encourage you to do this before you make tax estimates or adjust your W-4 tax withholding. You will have a more accurate base to estimate your taxes due. You should consider these tax return goals.
eFile.com makes it very easy for you to find out if you have to prepare and eFile an IRS Income Tax Return. Visit the FILEucator page and use this free and easy tax tool to get the right answer for your tax question without having to read a lot of complicated tax mumbo jumbo.
You can prepare your freelance, independent contractor, gig or shared economy tax return—together with W-2 income you or your spouse might have—here on eFile.com. We offer Premium Taxpert support at a significantly lower price than you would pay with a tax professional, TurboTax® or H&R Block®. Simply click the Start button below or contact one of our Taxpert with your gig questions.

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12018 Survey of 6,000 US Workers by the Freelancer Union and Upwork.