Ask The California Employment Tax And Payroll Tax Attorney – IRS Issues Guidelines For Gig Economy Workers
By Robert S. Schriebman
2021
Introduction
On April 30, 2021 the IRS issued a series of guidelines for gig workers that discuss the receipt of UI benefits, 1099 taxable income reporting and suggestions for record keeping. (IR 2021-97). This article will discuss these guidelines as well as a few tips of my own.
Gig Workers as Independent Contractors
According to the IRS press release, the gig economy refers to income earned while providing on-demand work, performing services or selling golds, including driving a car for booked rides or deliveries, renting out property, selling goods online or freelance work. The press release emphasizes the importance of collecting information and keeping good records so that your business-related expenses can be deductible (more on this below).
Unemployment Benefits
During the pandemic most states including California allowed gig workers to receive unemployment compensation benefits. These benefits were totally taxable as income until the IRS, in mid-March 2021, issued an announcement that up to $10,200 for an individual and $20,400 for a married couple, would be excludible from income so long as total taxable income did not exceed the threshold of $150,000. Benefits over and above these exclusions are still taxable. If the threshold is exceeded, all benefits are taxable; there are no exclusions.
If you filed a tax return reporting all UI benefits as taxable income, you are entitled to file an amended return, Form 1040X (540X in California) and get a refund relative to the amount of the exclusion.
1099 Reporting
Unemployment compensation benefits are reported based upon amounts set forth on the Form 1099-G. Some states will send recipients this form but some states do not. If you received UI benefits, make sure you file a 1099-G. Go to your UI account online at the EDD website for instructions to obtain your 1099-G.
Receipt of Bogus 1099
Unfortunately, thieves and crooks have made bogus UI claims using other peoples’ names and identification numbers. Because of this, innocent people may be on the receiving end of a bogus 1099-G for benefits never received. What to do if this happens to you?
The first thing you should do is contact the state agency in charge of issuing 1099-Gs and inform them that the 1099-G you received is bogus. Request a revised 1099-G showing that you did not receive these benefits. Either way, you should file your income tax returns reporting only the income you actually received. If you have received a corrected 1099-G attach it to your return. If you did not receive a corrected 1099-G, attach an explanation to your tax return explaining that you are the victim of fraud and identity theft.
Record Keeping
Most gig workers consider themselves as independent contractors. Some gig workers want to be treated as W2 wage earners, and they may be in a situation where the employer is reluctant to accommodate them. In that event it is better to seek regular employment that guarantee withholdings for future Social Security benefits and Medicare.
Most gig workers are sole proprietors. This means that they must file a Schedule C with their state and federal tax returns. The IRS audits more Schedule Cs than corporate returns. Because the relative high risk of audit, it is very important to have adequate books and records to support your deductions. You may be entitled to deduct vehicle-related expenses, home office, and related utilities. Deductions are allowed if they are ordinary, necessary, and reasonable pursuant to the guidelines and regulations set forth in Internal Revenue Code §§ 162, 274 and related sections. It is always wise to keep diaries of mileage, meals, and lodging expenses.
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Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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