The Internal Revenue Service urges anyone working in the sharing economy to perform a ‘Paycheck Checkup’ now to avoid an unexpected tax bill when they file their return next year.
If you use one of the many online platforms available to rent a spare bedroom, provide car rides, or to connect and provide a number of other goods or services, you’re involved in what is sometimes called the sharing economy.
Many people working in the sharing economy are employees, in which case their employers should be withholding taxes from their wages. Many others are not working as employees, so they need to make sure they pay their taxes either through withholding from other jobs they may have, or through estimated taxes.
Either way, because of the far-reaching tax changes taking effect this year, IRS urges taxpayers, including those in the sharing economy, to perform a Paycheck Checkup now. The easiest way for most employees to check their withholding is through the Withholding Calculator available on IRS.gov.
The U.S. tax system operates on a pay-as-you-go basis, so taxes must be paid as income is received rather than at the end of the year. This includes anyone involved in the sharing economy.
In recent years, the IRS has seen the number of taxpayers who paid the estimated tax penalty jump from 7.2 million in 2010 to 10 million in 2015, an increase of nearly 40 percent. Using the Withholding Calculator or Publication 505 and following the recommended steps can help avoid this underpayment penalty.
The IRS has created the Sharing Economy Tax Center to help people quickly find answers. It features:
- Filing Requirements
- Employee or Independent Contractor
- Tax Payments, Including Estimated Tax Payments
- Self-Employment Taxes
- Rules for Home Rentals
- Business Expenses
- Receiving Form 1099-K, Payment Card and Third-Party Network
Taxpayers can get more information on these topics at www.irs.gov/withholding. Additionally, IRS.gov/getready has information about steps taxpayers can take now to get a jump on next year’s taxes, including how the new tax law may affect them.