If you picked up a new job delivering food to people through GrubHub or Postmates, did other people’s grocery shopping using apps such as Shipt, or even driving people from place to place as an Uber or Lyft driver, you should have received a 1099 from that company by now.
It might have seemed like you have been an employee.
But, you were likely classified as an independent contractor doing this sort of work for these companies. If so, your taxes are not as simple as a salary or hourly worker who receives a W-2.
That 1099 should show how much money you received working these “gigs” throughout the year 2020. If you did, you might be wondering how to report this income on your taxes.
The proper way to report this income to the IRS is on an IRS Form Schedule C, Sole Proprietorship.
Luckily the Schedule C allows you to deduct many expenses that you should have incurred and can deduct from your total taxable income to arrive at a lower tax burden than you might have initially thought.
Expect to pay more than usual.
It is likely your employer did not pay any social security or Medicaid taxes for you. If so, expect to pay both the employer and employee’s side of self-employment taxes.
Usually, a company pays 6.2% of an employee’s income in Social Security taxes and 1.45% of the same income in Medicaid taxes, and the employee pays the other half.
Someone who is a 1099 worker, such as a Grubhub delivery driver, however, pays both parts of those taxes. Additionally, you might incur tax penalties thanks to the Affordable Care Act if you lost health insurance from a lost job and did not find new health insurance on the insurance marketplace.
The Internal Revenue Code allows for any deduction of a business expense if it was “ordinary and necessary” for you to complete your job.
Use of your car for business work and cell phone plans are common expenses that are necessary for gig work. If you were keeping track of your mileage, you will need use the IRS rate of 57.5 cents per mile.
Your cell phone
Your cell phone might have become something that is impossible for you to do gig work without.
If so, your cell phone plan can be deducted as a business expense against your 1099 income, but only the cost of the plan used for the job may be deducted as a business expense.
If your work involved materials used to make products, those materials may be deducted as costs of goods sold.
If you decided to make or build advertisements such as signs or business cards, you may also deduct the costs to make those as a business expense.
Any costs to purchases items such as shirts or bags may also be deducted from 1099 income.
Health insurance premiums may also be deductible if you had no other way to get health insurance from, for example, your spouse’s employer.
What if I don’t have enough?
If you know you cannot make tax payments to the IRS or state tax authorities such as the Oklahoma Tax Commission, don’t be afraid to file and pay what you can.
The authorities are willing to work with taxpayers who try to follow the tax laws.
Tax authorities often set up payment plans for filers who can’t pay the tax they owe, but do file a tax return on time. Tax payments owed to taxing authorities such as the IRS and the Oklahoma Tax Commission (OTC) are not delinquent until April 15th of this year, so there will be no interest or penalties incurred on outstanding balances due before then.
In conclusion, if you received a 1099 tax form for gig work you did in 2020, don’t be afraid of doing your taxes and filing a return. It will definitely be better than not filing at all, and you might come to find that you owe less than you think.
Disclaimer: These are general tax tips and not specific tax advice for your unique situation. Be sure to find a tax professional to answer questions about your individual taxes.
Last Updated February 28, 2021, 12:46 AM by Brett Dickerson – Editor