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Gig work is temporary or freelance work performed by an independent contractor on an informal or on-demand basis. Side hustles are work performed for income supplementary to a primary source that are not merely additional jobs as employees. The U.S. Bureau of Labor Statistics refers to all such arrangements as “contingent work.” Whichever definition suits the situation, for those performing services it means being in business and operating as such.
Overview of gig work and side hustles
DoorDash, a leading platform for gig workers, estimates that in 2024, there are 76.4 million gig workers. It’s also been estimated that 10.1% of gig workers rely on gig work as their main job.
Gig work is a way to earn money. In fact, 65% of gig workers say they earn more freelancing than they did through traditional employment. Side hustles produce additional income without being tied down to a second job. Yahoo! predicts that gig work and side hustles will likely grow because the cost of things is still climbing and savings are dwindling. Gig work offers flexibility and may dovetail nicely into scheduling for family responsibilities. What’s more, there’s no long-term commitment.
For others, gig work may be a path leading to a full-time business. It’s a way to test the marketplace, hone skills, and gain experience in running a business.
Worker classification
Do gig workers want to be independent contractors or would they prefer to be treated as employees? There’ve been no recent surveys on this important question. A few years ago, the U.S. Bureau of Labor Statistics found that 79% of gig workers preferred their work arrangement over a traditional job. Nonetheless, the government applies tests to say whether a particular worker is an independent contractor or an employee.
Minimum wage rules. Gig workers are usually independent contractors and not employees of the businesses or platforms for which they provide services. As such, they are not subject to minimum wage rules. However, a U.S. Department of Labor final rule that went into effect on March 11, 2024, may be used to classify gig workers as employees for purpose of determining whether they are subject to minimum wage and overtime pay rules. (There are a number of ongoing legal challenges to this rule, so monitor developments.) On the state level, many states use an ABC test that makes it easier for them to classify workers as employees for purposes of state wage rules.
Employment taxes. The DOL final rule does not apply for purposes of federal employment taxes. The IRS has its own test for worker classification, which examines the degree of control over the gig worker.
Taxes
If you do gig work and are an independent contractor, you must report your income and pay income tax on your profits. While employees have tax withholding from wages, there’s no withholding on payments to independent contractors.
You have to track your income and expenses to enable accurate reporting for tax purposes. You may get Form 1099-K, which reports the amount of payments received via third-party payment platforms, such as PayPal. But regardless of whether such form is received (there’s a threshold that exempts third parties from reporting amounts to you under $20,000 and 200 transactions for 2023 activities and $5,000 for 2024 activities), all income must be reported on your tax return. The amount reported on the 1099-K likely won’t reflect the taxable amount of income from gig work, because only profit—income minus deductible expenses—is taxed.
Again, because there is no withholding, you may have to pay estimated tax to cover the tax on profits from gig work. Understanding estimated tax obligations on the federal and, where applicable, state levels, is important so that penalties can be avoided.
Resources
Anyone doing gig work should understand the practical, financial, and tax ramifications. Some resources to help:
Final thought
Gig work and side hustles aren’t limited to ride-share drivers and freelance writing; such work can be done in almost any field. Whether a person wants to undertake gig work depends on the situation. Whether a business should engage gig workers is another question entirely…for a future blog.
Special note: For additional information on this topic, see my published eBooks (2019-2020) on Amazon here and here. Also, you’ll find all my books listed on our website’s book page here.
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