Overview
Earning income through ridesharing, delivery apps, freelancing, or short-term gigs usually makes you a self-employed taxpayer in the IRS’s view. That changes how you report income and pay Social Security and Medicare taxes. Unlike W-2 employees, tax withholding isn’t automatic — you must track income, claim business expenses, and often pay quarterly estimated taxes.
Key IRS forms you’ll see
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Form 1099-NEC (Nonemployee Compensation): Most clients who pay $600 or more for services will issue a 1099-NEC reporting what they paid you. If you get one, use it to cross-check your records, but you must report all income even if you don’t receive a form. (See IRS: About Form 1099-NEC: https://www.irs.gov/forms-pubs/about-form-1099-nec.)
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Form 1099-MISC (Miscellaneous Income): Used for non-contract payments such as rent or certain prizes and awards. After 2020 the 1099-NEC replaced many contractor payments, but 1099-MISC remains in use for other categories.
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Form 1099-K (Payment Card and Third-Party Network Transactions): Platforms and payment processors may issue 1099-Ks for payments they process on your behalf. Reporting requirements for 1099-K have changed in recent years; check your platform statements and IRS guidance to see whether you should expect one.
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Schedule C (Profit or Loss from Business – Sole Proprietorship): You report gross receipts and all ordinary and necessary business expenses here to determine your net profit or loss.
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Schedule SE (Self-Employment Tax): Calculates the Social Security and Medicare tax on your net self-employment earnings. The tax is based on 92.35% of your net profit and the combined rate is 15.3% (12.4% Social Security up to the annual wage base and 2.9% Medicare; high earners may owe an additional 0.9% Medicare surtax). Half of the self-employment tax is deductible on your Form 1040.
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Form 1040 (U.S. Individual Income Tax Return): Your personal income tax return that incorporates Schedule C and Schedule SE results.
How filing works — step by step
1) Track every dollar of income. Log payments whether or not you receive a 1099. Use bank statements, app payment histories, or accounting software.
2) Track and categorize expenses. Keep receipts and note business purpose and date. Common categories include supplies, marketing, equipment, software subscriptions, professional fees, and vehicle or travel costs.
3) Calculate net profit or loss on Schedule C. Gross income minus allowable business expenses equals net earnings from self-employment.
4) Compute self-employment tax on Schedule SE. Multiply 92.35% of your net earnings by the self-employment tax rate to determine the amount owed.
5) Claim the deduction for half of your self-employment tax on Form 1040 (above the line deduction). Report any income tax due after considering withholding and estimated payments.
6) File your return and pay any balance due. If you expect to owe at least $1,000 in tax for the year after withholding and credits, make quarterly estimated tax payments to avoid penalties.
Estimated taxes and payment schedule
Because payers typically don’t withhold federal income tax or the employer portion of payroll taxes, many gig workers must pay estimated taxes quarterly. Estimated payment due dates fall in April, June, September and January (the exact dates can shift if a deadline falls on a weekend or holiday). For guidance on calculating and making payments, see our internal resource on Estimated Taxes for Freelancers and the IRS’s Topic on estimated tax.
Deductible business expenses (what to record and why)
Legitimate business expenses reduce your taxable income. You can deduct ordinary and necessary costs directly related to your trade or business. Common deductions for gig workers:
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Home office: If you use a space in your home regularly and exclusively for business, you can choose the simplified method (a set rate per square foot, up to a limit) or the regular method (actual expenses prorated by the business use percentage). Keep documentation of square footage and exclusive use.
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Vehicle expenses: If you use a car for business, deduct either the standard mileage rate (set annually by the IRS) or actual vehicle expenses (gas, maintenance, depreciation, insurance) prorated for business use. Maintain a contemporaneous mileage log showing date, miles, purpose, and start/end locations.
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Supplies and equipment: Items such as tools, phone accessories, printer paper, or a computer used for business are deductible. Expensing rules and depreciation limits may apply for larger purchases.
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Software, subscriptions, and platforms: Monthly or annual fees for services you need for work (design tools, cloud storage, invoicing apps) are deductible.
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Professional services and education: Fees for tax pros, business attorneys, and job-related training can be deductible.
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Insurance and phone: Business portion of health insurance (if self-employed and not eligible for another employer plan) and the business portion of your phone bill can be deductible.
Practical tips for maximizing deductions without raising red flags
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Be accurate and conservative: Don’t claim personal expenses as business costs. Exclusive and regular use tests for home offices are strict.
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Keep contemporaneous records: The IRS favors records created at the time of transactions (mileage logs, receipts, invoices). Photocopies and digital scans are acceptable when stored reliably.
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Separate accounts: Use a business bank account and a business credit card to simplify recordkeeping and avoid commingling.
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Use software or apps: Accounting tools (QuickBooks, Wave, or other invoicing tools) make tracking income and generating reports easier when preparing Schedule C.
Common mistakes and how to avoid them
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Not reporting all income: Even if you don’t receive a 1099, you must report payments you received for services.
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Missing estimated payments: Underpayment results in penalties and interest. If you can’t pay in full, pay as much as possible and contact the IRS to discuss options rather than ignoring the balance.
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Poor records for vehicle and home office deductions: Without proper documentation, legitimate deductions may be disallowed.
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Claiming disallowed personal expenses: Mixing personal and business costs can trigger audits and denied deductions.
Example calculations
Example 1 — Self-employment tax approximation: If your Schedule C net profit is $50,000, multiply by 0.9235 to get the net earnings subject to SE tax: $46,175. Then multiply by 0.153 (15.3%) to get an estimated SE tax of about $7,064.78. You can deduct half of that amount on your Form 1040.
Example 2 — Quarterly estimated payment planning: If you expect $6,000 of total tax liability (after credits and withholding) for the year, divide by four to plan roughly $1,500 per quarter, adjusting if your income varies seasonally.
When to get help
If you have complex income streams, collect 1099-Ks from payment platforms, use retirement plan–eligible contributions for the self-employed (SEP IRA, SIMPLE IRA, or solo 401(k)), or want to explore forming an LLC or S-corporation for tax reasons, consult a tax professional. A CPA or enrolled agent who works with gig economy clients can help you choose the best deductions and entity structure.
Internal and external resources
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FinHelp: Estimated Taxes for Freelancers — practical guidance on quarterly payments and safe harbors: https://finhelp.io/glossary/estimated-taxes-for-freelancers/
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FinHelp: A Guide to Self-Employment Taxes — deeper dive into how Schedule SE works: https://finhelp.io/glossary/a-guide-to-self-employment-taxes/
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FinHelp: Gig Economy Taxes — overview of platform reporting and common scenarios: https://finhelp.io/glossary/gig-economy-taxes/
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IRS: Self-Employment Tax (includes links to Schedule SE and related publications): https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax
Final checklist before you file
- Have you recorded all income, including cash and app payments?
- Do you have receipts or documentation for every major deduction claimed?
- Did you set aside money for estimated taxes during the year?
- Are your business and personal accounts separated?
- If required, did you make estimated tax payments on the IRS schedule?
If you answer “no” to any of these, take action before year-end or consult a tax preparer. Accurate recordkeeping and regular tax planning can reduce surprises at filing time and help you keep more of what you earn.