If you became a gig worker during the pandemic, beware: Your taxes just got more complicated.
Gig work — Uber driving, Instacart shopping, Amazon Flex delivery and so on — is on-demand, freelance work that’s typically taxed as self-employment. Instead of having an employer withhold money from your paycheck, you’re an independent contractor who is expected to pay taxes on your gig income as you earn it. You’ll also owe a larger share of your pay to Social Security and Medicare taxes.
On the plus side, you may have more opportunities to deduct your expenses and save for retirement than you do as a W-2 employee.
SELF-EMPLOYMENT TAXES ARE A MYSTERY TO MANY
About half of U.S. adults say they don’t have a good understanding of the tax implications of freelance or gig work, according to a recent NerdWallet survey. Yet this type of work was a growing part of the U.S. economy even before the pandemic upended people’s work lives.
A survey last summer by Upwork, a freelance job platform, found 59 million Americans — or 36% of the U.S. labor force — had freelanced in the previous 12 months. But COVID-19 lockdowns led to big changes in the composition of the freelance fleet. Millions had to quit during the pandemic, often because of lack of work or fear of contracting the virus. At the same time, massive unemployment and a surge in demand for home delivery led millions of others to seek out freelance work for the first time.