Gig Economy Workers and Taxes

Question 1

What is the defo of an employee

Answer 1

Employee: In general, anyone who performs services for an organization, such as a business or non-for-profit, is considered an employee if the organization can control what work will be done and how it will be done. An employee may have a written employment contract with the organization and receive a specified wage or salary.

Question 2

What is the defo of an Independent Contractor?

Answer 2

Independent Contractor: An independent contractor is someone who provides a service on a contractual basis. Working as an independent contractor is one way of being Self-Employed. Generally, workers in the Gig Economy are considered Independent Contractors.

Question 3

What is the defo of an Self-Employed Individual

Answer 3

Self-Employed: Self-employed individuals typically find their own work rather than being provided with work by an employer. They earn income from a service, trade, or business they operate.

Generally, your clients are considered self-employed if any of the following apply:

• they carry on a trade or business as a sole proprietor or an independent contractor;
• they are a member of a partnership that carries on a trade or business; or
• they are otherwise in business for themselves (including a part-time business).

Question 4

What are some examples of workers who may be considered self-employed:

Answer 4

• subcontractors, homebuilders, landscapers, plumbers, electricians, mechanics, carpenters, welders, and other trade workers;
• freelancers such as artists, writers, graphic designers, and musicians;
• per diem nurses and other paid-by-the-day workers;
• by-the-job professionals such as temporary agency workers;
• childcare providers and house cleaners;
• nail salon technicians, beauticians, barbers, and hair stylists;
• delivery persons;

Question 5

Examples of workers who may be considered self-employed: (cont.)

Answer 5

• car-service and ride-hailing drivers;
• food cart and food truck vendors;
• coaches, referees, and camp counselors;
• independent consultants, doctors, lawyers, and accountants;
• IT professionals and software developers;
• real estate agents;
• election poll workers; and
• other independent professional workers.

Question 6

Gig economy workers generally receive the following information statements:

Answer 6

• Form 1099-NEC, Nonemployee Compensation;
• Form 1099-K, Payment Card and Third Party Network Transactions.
• Form 1099-MISC, Miscellaneous Income

Important Note: Beginning in tax year 2020, Form 1099-NEC replaces Form 1099-MISC, to report non-employee compensation earned by independent contractors. For more information see the IRS’ website.

Question 7

Tax Forms

Income from the following federal forms must be reported on your client’s tax return.

What form is used and When must businesses have to send out the form

Answer 7

• Form 1099-NEC, Nonemployee Compensation is now used to report income earned by independent contractors and self-employed individuals.

Businesses will issue Form 1099-NEC if they made payments totaling $600 or more to a nonemployee, such as an independent contractor or self-employed individual for:

• Rent payments to real estate agents or property managers
• Services performed; and
• Other income payments.

For more information, see the IRS’ website.

Question 8

What is Form 1099-K, Payment Card and Third Party Network Transactions,

Answer 8

• is an IRS information return used to report certain payment transactions to improve voluntary tax compliance.

For more information, see the IRS’ website.

Question 9

What is tax form Form 1099-MISC, Miscellaneous Income used for now?

Answer 9

• Form 1099-MISC, Miscellaneous Income is now used to report income not reportable on Form 1099-NEC such as commissions, royalties, prizes and awards, professional service fees, or rents paid directly to property owners.

For more information, see the IRS’ website.

Question 10

Tax Forms (cont.)

• When should taxpayers receive Form 1099?
• What is the threshold of when companies (3rd Party) are required to send out?

Answer 10

Your clients should receive Form 1099-K by January 31st if, in the prior calendar year, they received payments:

• from payment card transactions (e.g., debit, credit or stored-value cards); and/or
• in settlement of third-party payment network transactions above the minimum reporting thresholds of:
  
  • gross payments that exceed
    $20,000; and
  • more than 200 such transactions
  • • Note: Even if your clients do not receive these tax forms, any income earned must be reported on their tax return.

Question 11

Gig workers and taxes

Your client is responsible for:

Answer 11

• keeping track of all their income and expenses;
• making estimated payments; and
• paying the taxes they owe on time.

Question 12

Withholding vs. Estimated Tax

What’s the difference?

Answer 12

Withholding: If your client is classified as an employee and receives a W-2, their employer must withhold income taxes. The amount withheld is paid in the taxpayer’s name to the IRS and to the New York State Tax Department.

Estimated tax: Gig workers who are self-employed or independent contractors do not have taxes withheld from their income. They should make estimated tax payments at least quarterly to cover their tax obligations.

Question 13

Who Must Pay Estimated Tax

Answer 13

Your clients may be required to make estimated tax payments when no tax, or not enough tax, is withheld during the year.

Estimated tax payments must be made if your client:

• Expects to owe at least $300 of either New York State, New York City, or Yonkers tax income tax, or
• Has net earnings from self-employment allocated to the Metropolitan Commuter Transportation Mobility Tax (MCTMT).

Note: Generally, independent contractors and self-employed individuals need to make estimated tax payments.

Question 14

When are estimated tax payments due?

Answer 14

Generally, your clients must make their first estimated tax payment for the year by April 15.

They can either pay all their estimated tax with this first payment, or pay it in four installments as the income is being earned, generally due on April 15, June 15, September 15, and January 15

Question 15

How to calculate and pay

New York estimated taxes

• When are estimated tax payments due?
• What is the form to get the instructions and the voucher to pay?

Answer 15

Use Form IT-2105-I, Instructions For Estimated Tax Payment Voucher for Individuals, to calculate your clients’ New York state estimated tax payments. Complete the worksheet on page 7 to calculate the estimated tax for New York City and Yonkers. You should estimate their income as accurately as possible to avoid penalties.

You may be able to setup estimated tax payments for your clients through your tax software. Payments can be made for the current quarter or scheduled for future quarters.

Question 16

• *How to calculate and pay**
• *New York estimated taxes (cont.)**
• What form is used for Individuals to pay Estimated Taxes

Answer 16

In addition, you can make payments electronically, check balances, and view your clients’ estimated tax account through your Tax Professional Online services account. You can create a Tax Professional Online services account by visiting our website www.tax.ny.gov (search: Online services ).

The scheduled payments may be canceled through Online services or by contacting the Department.

You can also pay using Form IT-2105, Estimated Tax Payment Voucher for Individuals. This payment voucher is required if you mail your payment.

Question 17

What is the Penalty for underpaying estimated tax

Answer 17

Your client may be charged a penalty on the amount of estimated tax they did not pay or paid late during the year, plus interest charges.

The penalty will equal the federal short-term interest rate plus five and one half percentage points (adjusted quarterly), but not less than 7.5%.

See Form IT-2105.9-I, Instructions for Form IT-2105.9 Underpayment of Estimated Tax by Individuals and Fiduciaries, on our website (Search: estimated taxes) to calculate the penalty amount.

Question 18

What is the MCTMT Estimated Tax Payments

Answer 18

The Metropolitan Commuter Transportation Mobility Tax (MCTMT) is imposed on self-employed individuals engaging in business within the Metropolitan Commuter Transportation District (MCTD). The MCTD consists of New York City (the counties of New York (Manhattan), Bronx, Kings (Brooklyn), Queens, and Richmond (Staten Island)) as well as the counties of Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester.

Question 19

The Metropolitan Commuter Transportation Mobility Tax (MCTMT) continued

Who does the MCTMT apply to

Answer 19

he MCTMT (metropolitan commuter transportation mobility tax) applies to self-employed individuals (including partners) with net earnings from the MCTD that exceed $50,000.

The $50,000 threshold must be calculated on an individual basis, even though your client may file a joint personal income tax return. If your client’s net earnings from self-employment allocated to the MCTD are $50,000 or less for the tax year, no tax is due.

Question 20

MCTMT Estimated Tax Payments (cont.)

True or False

Generally, if your client is a self-employed individual (including partners or members in partnerships, limited liability partnerships (LLPs) that are treated as partnerships, and limited liability companies (LLCs) that are treated as partnerships), they must make estimated MCTMT payments if they expect to owe any MCTMT for the tax year after subtracting any estimated MCTMT paid on their behalf by a partnership.

Answer 20

Answer: True

Generally, if your client is a self-employed individual (including partners or members in partnerships, limited liability partnerships (LLPs) that are treated as partnerships, and limited liability companies (LLCs) that are treated as partnerships), they must make estimated MCTMT payments if they expect to owe any MCTMT for the tax year after subtracting any estimated MCTMT paid on their behalf by a partnership.

Note: See IT-2105-I, Instructions for Form IT-2105 Estimated Tax Payment Voucher for Individuals for instructions on how the MCTMT estimated tax payment is calculated.

Question 21

The importance of your client maintaining books and records

How long should Clients keep records?

Answer 21

Answer: 7 years

Maintaining good records is the most important part of your client’s tax responsibilities. Generally, they must keep records and supporting documents for at least seven years after they file a return. These records document what they claim on their income tax return, including:

• all sources of income;
• the total of any withholding and estimated tax payments made; and
• the expenses they may be entitled to deduct.

Good recordkeeping also helps your clients determine which valuable credits and deductions they qualify for. It also provides documentation if the Tax Department asks for additional information.

Question 22

The importance of your client maintaining books and records (cont.)

Answer 22

At the beginning of each tax year, and before your clients claim a credit or itemized deduction, they should review the following checklists to be sure they’re keeping the records they need to get the credits and deductions they qualify for:

• Recordkeeping for individuals; and
• Recordkeeping for businesses.

Each checklist includes detailed information about the proof we require if they need to send us additional information after they file their return.

Note: If we send your clients a letter requesting additional information, they must send us copies of the documentation outlined in the checklists. The department will not return any correspondence received from taxpayers.

Question 23

What are examples of Good books and records?

Answer 23

• copies of checks or money orders that they received as payments;
• receipts and invoices for payments they made;
• credit card statements and receipts used to pay expenses;
• bank statements, deposit slips, canceled checks;
• invoices, credit card sales slips, cash register receipts;
• daily ledgers that lists cash income; and
• mileage logs for travel to perform business or self-employed activities.

Question 24

Good books and records:

Answer 24

Your clients must be able to substantiate any expenses, deductions, and credits claimed on their tax return. They may be asked to produce their records up to three years after you file their return.

Remember: The records should contain enough information to correctly determine their gross receipts, self-employed or business expenses, and inventory and asset purchases.

They need to keep receipts and other documents to support each entry in their log

Question 25

Important tax tips for ride sharing drivers

What are the two ways to calculate deduction for business use of a car?

Answer 25

There are two ways to calculate deductions for the business use of a car:

• your client can deduct actual car expenses, which include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, and registration fees, OR
• your client can use the standard IRS mileage deduction. Check with your tax professional software or with the IRS for the standard mileage rate for the current tax year.

Question 26

KNOWLEDGE CHECK Question 1

Generally, who must pay New York State estimated taxes?

1. An employee who only receives a W-2.
2. A taxpayer who expects to owe less than $300 in New York State, New York City or Yonkers taxes.
3. An independent contractor or self-employed individual.
4. A retired taxpayer who only receives Social Security income

Answer 26

Answer: 3

An independent contractor or self-employed individual.

Question 27

KNOWLEDGE CHECK Question 2

Estimated tax is the method used to pay tax on income when no tax—or not enough tax—was withheld.

True or False

Answer 27

Answer: True

Question 28

KNOWLEDGE CHECK Question 3

Which form is used to calculate the penalty for underpayment of New York State estimated income tax by individuals?

1. Form 2210
2. Form IT-203
3. Form IT-2105.9
4. Form IT-2104

Answer 28

Answer: 3 Form IT-2105.9

Question 29

KNOWLEDGE CHECK Question 4

Generally, what are the quarterly due dates for estimated tax payments

1. The taxpayer can prepay all their estimated payments up front by April 15th
2. April 15, JUne 15, September 15th and January 15
3. March 31, May 30th, September 1st and January 30th
4. All of the above

Answer 29

Answer 2

April 15, JUne 15, September 15th and January 15

4. Gener

Question 30

KNOWLEDGE CHECK Question 5

Clients who are paid by cash and checks do not need to report the cash income on their tax return, only the income paid by check since there is a record

True or False

Answer 30

Answer: False

Question 31

KNOWLEDGE CHECK Question 6

What are some general examples of acceptable documentation for proof of income?

1. A daily ledger that includes location, dates received, payers name, of and amount of cash income earned.
2. Copies of cashed checks or money orders that were received as payments.
3. Bank statements and deposit slips showing when income was deposit
4. All of the above

Answer 31

Answer: 4 All of the above

Question 32

KNOWLEDGE CHECK Question 7

To calculate and pay New York State estimated taxes a taxpayer should calculate the estimated taxes at the end of the year on their IT-201 or IT-203 income tax return and pay with an IT-201-V Payment Voucher.

Answer 32

Answer: False