The Gig Economy is growing.While the working world is changing, the one thing that remains the same is that all workers must pay taxes. If you are working as a contractor or freelancer, you may have to pay the IRS for self-employment tax. One question that all members of the Gig Economy should ask themselves is whether they are saving enough for taxes? Continue reading to learn about paying taxes in The Gig Economy.
As a freelancer or contractor, you may be providing a service to someone else. However, the Internal Revenue Services considers Gig Economy workers as self-employed. You may wonder what this means during tax time? It means that you are still responsible for the taxes that your employer would normally pay on your behalf.
Since you are considered a self-employed worker, it may be required that you file an annual tax return and pay an estimated tax quarterly. You may also have to pay a self-employment tax which pays for Social Security and Medicare. Since you are self-employed, the taxes aren’t taken out of your initial pay, so they must be paid to the IRS later.
The IRS Schedule (Form-1040) allows self-employed workers to calculate the taxes they owe on their net self-employment pay. After you fill out this form, the Social Security Administration is able to determine your benefits through the social security program. If you prefer to avoid a big bill at the end of the year, you can choose to make quarterly payments. These are refereed as Estimated Tax payments.
To see if your income is subject to self-employment tax, you can take a test from the IRS. All you need to know is the type of self-employment income you’ve made and your net profit or loss from your self-employment income.
Each time you get paid, you should save between 25-30 perfect of your self-employment income. This will help you pay off that large tax bill at the end of the year. If you end up not owing taxes at the end of the year, you can use those savings for something else.
The Family Credit Union is here for all your financial needs! Contact us today and we will be happy to answer any questions that you have or provide you with more information on our services. We look forward to hearing from you!