Am I Self-Employed? Reporting Income in a Gig Economy
Many Americans find that working for themselves provides the flexibility and extra income that a traditional job just can’t. Words like side gig, side hustle, freelance, independent contracting, and small business owner might describe what you do, but is it the same as being self-employed? Here’s how you can tell.
You could be self-employed if…
You technically work for someone else
When someone dictates how you must provide your services or products, you are, by definition, an employee. If your job is traditional, your employer withholds money for income taxes, Social Security, and Medicare from your paycheck. But many of today’s side gigs are contracted, and your “employer” doesn’t have to withhold anything as long as you provide them with your taxpayer ID number (SSN, EIN, etc.). In this case, you are expected to pay your own self-employment tax. You may even be required to pay quarterly estimated payments.
You receive a Form 1099-MISC
One test to see if you are self-employed or not is to see if you receive a 1099. If you were paid $600 or more from a client/employer for your services, they should complete a 1099-MISC and send it to you by Jan 31 the following year. They’ll send the same form to the IRS. This is common for contract employees who work from home, such as medical transcriptionists, call representatives, and travel agents. There are other types of 1099s – like the 1099-K for rideshare drivers and Airbnb hosts. All versions of the form indicate that you are self-employed.
You drive for Uber and Lyft
Rideshare drivers for apps like Uber and Lyft are considered sole-proprietors. Sole proprietors are more than just self-employed: they are small business owners. Other types of small business include S-Corps, LLCs, and partnerships. As a rideshare driver and a small business owner, you are eligible for several important tax breaks – including a new 20% deduction for pass-through income.
Photographers, graphic designers, writers, and other creatives commonly use the word freelance to describe what they do. Just like the other self-employed categories, freelancers are eligible to claim deductions for supplies and home office space, but you’ll need to keep very detailed records of your expenses and income. And you’ll need a 1099-MISC from anyone who pays you more than $600.
You are an independent distributor (i.e. Avon, Mary Kay, Advocare, LulaRoe, etc.)
Essential oils, candles, clothing, health supplements… the list of products that are sold through home parties continues to grow. Being a sales consultant is considered self-employment if you are treating it as a true business. Also note that you are eligible to take small business deductions if you are actively selling products in pursuit of a profit.
Your income depends on your specific skills (such as athletes, performing artists, accountants, doctors, and dentists)
You’re not really a contractor, but you’re not freelance either. You provide a specific service that required special training. In this case, you could be considered a specified service trade or business. Under the Tax Cuts and Jobs Act, you are eligible for the 20% pass-through business deduction, but your income is subject to thresholds. Learn about the effects of tax reform on your self-employed deductions.
You havea full-time job and a part-time side gig
Even if you only do your side hustle on a part-time basis –just a few hours, weeknights only, or a weekend here and there – you are still self-employed for tax purposes. If your full-time employer has you complete a Form W-4, you can (and should) include your extra income on the W-4 as well. That way your withholdings for income tax and FICA (Social Security and Medicare) will be calculated accurately, and you won’t be hit with a surprise tax bill when you file your return.
You host on Airbnb (in some cases)
Renting out your space through a hosting site like Airbnb, VRBO, or HomeAway is not considered self-employment unless you offer over-the-top services to your guests. Providing meals and/or cleaning services, for example, makes your rental look more like a traditional bed & breakfast. In this case, you would need to pay self-employment tax. But if you stick to the basic amenities, you would only need to pay income tax. For more on this, read The Complete Tax Guide for Airbnb, HomeAway, and VRBO Hosts.
This article is up to date and accounts for tax law changes for tax year 2018 (tax returns filed in 2019). Learn more about tax reform enacted under the Tax Cuts and Jobs Act here.