Page 4 November 2, 2017
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Three Steps to Help Freelancers and Gig
Economy Workers Avoid a Tax Blunder
(BPT) - More and more people are earning
extra cash by freelancing in the sharing
economy. That may mean writing on the side,
playing music on the weekends, driving for
ride-sharing services like Uber or Lyft or
selling handmade jewelry on Etsy.
“While it’s easier now than ever to earn
extra cash, it’s important for freelancers and
independent contractors to get smart about
their tax responsibilities,” said Mark Jaeger,
director of Tax Development for TaxAct, a
leading provider of affordable do-it-yourself
tax software. “Gig economy earners must
remember they are responsible for paying
federal and state income tax on any income
earned. And, they’re also subject to selfemployment
tax, to cover Social Security
and Medicare taxes.”
If you’re one of the 55 million Americans
who chooses to freelance, it can be difficult
to correctly calculate and report to the IRS
how much tax you owe. In fact, a recent
survey conducted by the National Association
of Enrolled Agents found that, “independent
contractors participating in the gig economy
were cited as among those most at risk of
failing to accurately report all of their income.”
Taxpayers who miscalculate taxes owed
are likely to get a form called a CP2000
from the IRS. Whether you work full time
and earn a little extra cash from a side hustle
or you’re a full-time contractor, meticulous
record-keeping is a must. Once a quarter, as
you determine what you’ll owe for quarterly
tax payments, make note of which of those
receipts are deductible.
When you’re freelancing, you’re your
own accounting department. Not only are
you responsible for generating invoices and
collecting payment, you must also keep track
of all income earned and accurately report
it to the IRS.
For example, gig economy workers who
make money freelancing for multiple clients
while also moonlighting as an Uber or Lyft
driver should track all income and expenses
separately. That means keeping accurate
records of any money paid directly by clients
and keeping track of income reported
on documents such as Forms 1099-MISC
and 1099-K. These forms are issued when
self-employment income exceeds $600 (1099-
MISC) and when a contractor is paid through
credit- and debit-card payment processors
(1099-K). Come tax time, fill out a Schedule
C for every company or client who has paid
you to report all of the income you earned.
The IRS requires independent contractors to
file and pay taxes on a quarterly basis, even
if you anticipate getting a refund at the end
of the tax year. Use a tax calculator to help
determine whether you should make estimated
tax payments. You can also use Worksheet
2.1 in IRS Form 1040-ES, Estimated Tax for
Individuals, to figure out whether you must
pay estimated tax. Whatever method you
choose, make sure you calculate adjusted
gross income, taxable income, taxes, deductions
As a rule of thumb, if you will owe at
least $1,000 in taxes, you should plan to
pay estimated taxes during the current tax
year. Jaeger added, “If you owe estimated
quarterly payments but don’t pay them in
full, you could face an underpayment penalty
by the IRS.” •
last week as the 2018 rates were announced.
Silver plans will cost less than $25 per
month more next year with the surcharge,
the exchange estimates.
In the South Bay, the number of health
plans participating in the ACA marketplace
remains strong. Residents will have their
choice of eight health plans next year through
Covered California. Anthem is dropping out
of the individual marketplace and will sell
only employed-sponsored health plans next
year, the insurer said in August.
Health plan participants in next year’s
individual ACA market will be:
- Blue Shield HMO and PPO
- Health Net of California HMO and HSP
- Kaiser Permanente
- L.A. Care
Peter V. Lee, executive director of Covered California
People also use their employer-sponsored
health plans, Medi-Cal, Medicare or the
Children’s Health Insurance Program (CHIP)
to comply with the coverage requirement in
the nation’s Patient Protection and Affordable
Care Act, passed by Congress in 2011.
Lee urged the White House not to withhold
the ACA subsidy money, which the
President said he was considering doing
after the Republican-controlled Congress
failed to deliver on his campaign promise to
repeal Obamacare along with the individual
mandate that all Americans be insured or pay
an annual penalty.
Commissioner Jones opposed the White
House intervention after failed attempts by
the House and Senate to pass repeal bills
ending the Obama administration’s law.
“We can expect this to result in the sale
of products that don’t cover our healthcare
needs, cost most consumers more,” Jones
said about the President’s order.
It’s too early to know if health plans based
outside California will make a foray into the
nation’s largest insurance market. Jones, a
Democrat, said the President’s order weakens
his office’s power to protect consumers who
must buy their own insurance under the law.
The President has chosen to “promote a
race to the bottom, where insurers choose
to incorporate in the state with the weakest
laws and requirements providing the fewest
benefits and skimpiest consumer protections,”
More than 1.4 million California residents
use Covered California to compare plan benefits
and select the most affordable coverage
for them and their families, the exchange says.
Of that number, 1.2 million receive some
financial assistance to defray the monthly
premium for their coverage.
Lee echoed what he advised consumers last
year when their premiums through Covered
California jumped almost 12 percent: Compare
the plans and shop for one that makes sense
financially and medically. The average silver
plan was under $100 per month last year for
three-in-five people, and $10 for the bronze
plans, he said.
A bronze plan offers higher out-of-pocket
co-pays and deductibles for physician and
hospital services. This lower-tier option is
recommended for healthy young people
and families without pre-existing medical
conditions that could require hospitalization
and surgery. A bronze meets the individual
mandate at a lower monthly cost.
Covered California’s open enrollment period
runs from November 1 through January 31.
Consumers can explore plans and pricing
options and whether they qualify for financial
assistance at www.CoveredCA.com. •
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