The Internal Revenue Service reminds taxpayers of their reporting and potential tax obligations on income from the gig economy and service industry.
Information available on IRS.gov and Instructions for Form 1040 and Form 1040-SR can help taxpayers understand and meet these reporting and tax requirements.
Gig Economy Earnings Are Taxable
Generally, income earned from the gig economy is taxable and must be reported to the IRS on tax returns.
The gig economy is activity where people earn income providing on-demand work, services or goods, such as selling goods online, driving a car for deliveries or renting out property. Often, it’s through a digital platform like an app or website.
Taxpayers must report income earned from the gig economy on a tax return, even if the income is:
- From part-time, temporary or side work.
- Paid in any form, including cash, property, goods or digital assets
- Not reported on an information return form like a Form 1099-K, 1099-MISC, W-2 or other income statement.
For more information on the gig economy, visit the gig economy tax center.
Service Industry Tips Are Taxable
People who work in restaurants, salons, hotels and similar service industries often receive tips for the customer service they provide. Tips are usually taxable income, and it’s important for people working in these areas to understand details on how to report tips.
Tips are optional cash or noncash payments customers make to employees.
- Cash tips include those received directly from customers, electronically paid tips distributed to the employee by their employer and tips received from other employees under any tip-sharing arrangement. All cash tips must be reported to the employer, who must include them on the employee’s Form W-2, Wage and Tax Statement.
- Noncash tips are those of value received in any other medium than cash, such as: tickets, passes or other goods or commodities a customer gives the employee. Noncash tips aren’t reported to the employer but must be reported on a tax return.
- Any tips the employee didn’t report to the employer must be reported separately on Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to include as additional wages with their tax return. The employee must also pay the employee share of Social Security and Medicare tax owed on those tips.
Employees don’t have to report tip amounts of less than $20 per month per employer. For larger amounts, employees must report tips to the employer by the 10th of the month following the month the tips were received.
The employee can use Form 4070, Employee’s Report of Tips to Employer, available in Publication 1244, Employee’s Daily Record of Tips and Report to Employer, an employer-provided form or other electronic system used by their employer.
For more information on how to report tips see Tip Recordkeeping and Reporting.