The gig economy is growing, providing workers with more flexibility and independence than ever before. From freelancing and contract work to rideshare driving and side hustles, many people are choosing gig work over traditional employment. While this offers greater freedom, it also comes with financial challenges—especially when it comes to taxes and savings. If you’re part of the gig economy or considering joining, here’s what you need to know to stay financially secure.
Understanding Your Tax Obligations
- You May Be Considered Self-Employed:
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. - Your Tax Obligations May Be Unique: 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.
- Calculate Your Self-Employment Taxes: 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.
- How Much Should You Save? 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.
Building Financial Security in the Gig Economy
Unlike traditional jobs, gig work doesn’t come with employer-sponsored benefits like retirement plans or health insurance. This makes it even more important to build a strong financial foundation.
- Save Automatically:
Saving automatically is an easy and effective way to increase savings while working in the gig economy. Since most paychecks are directly deposited into one’s back account, employees should have some of their money transferred into a checking account and some of it put into a savings account. Workers will be increasing their savings, while less likely to spend it. - Create An Emergency Fund: An emergency fund is a fund that does not have easy accessibility. It is important for workers who do not have a steady paycheck to have an emergency fund because the fund can help cover any unexpected or unavoidable expenses that may come up. An emergency fund can help you pay these unexpected expenses without going into debt. Learn more about emergency funds by clicking HERE.
- Open A Retirement Account: Just because you don’t have an employer-sponsored retirement account, doesn’t mean you still can’t save up for retirement. It is possible to still save for retirement with Individual Retirement Accounts (IRAs). The two types of IRAs are traditional IRAs and Roth IRAs. Both types have different rules and offer different tax benefits. It is important to choose the IRA that will best meet your individual needs.
How The Family Credit Union Can Help
At The Family Credit Union, we understand the unique financial challenges of gig workers. Whether you need help with tax planning, savings strategies, or retirement planning, we have the tools and resources to support you.
- Savings Accounts – Build your emergency fund with our flexible savings options.
- Retirement Accounts – Open an IRA to start saving for the future.
- Financial Guidance – Get expert advice on budgeting and financial planning.
The gig economy offers exciting opportunities, but financial stability requires planning. Contact The Family Credit Union today to learn how we can help you thrive in your gig career!
