What is the difference between a gig worker and an independent contractor?
Legally, the IRS does not distinguish between a “gig worker” and a typical independent contractor or freelancer. Any worker that is not technically an employee of a business is expected to act as a 1099 self-employed contractor unless they have registered their business as a separate entity.
Culturally, a “gig” worker is the name for someone who typically accepts jobs on a very short-term basis with no expectation of a long term relationship. They often work for cash on an as-needed basis, unlike freelancers who may maintain relationships for a longer period.
Increasingly, gig workers benefit from businesses that provide a platform for them to view available work, accept it, and perform that work all on their preferred schedule. Uber, GrubHub, and Instacart are three examples of such businesses, although there is some debate about whether this relationship actually qualifies as a “gig” or employee relationship.
In sum: all gig workers are independent contractors when properly classified, but gig workers have a reputation for on-again, off-again work via an informal relationship with the business offering the work.
How do I file or pay taxes if I get paid in cash?
Anyone who has earned more than $400 from a specific revenue source or contracting party must report that income, regardless of how it is issued.
You can report all income on the typical form 1040 tax return. Report the income on line 7 as “wages” if you were an employee, or use Schedule C if you are technically self-employed/an independent contractor.
Note that you will be expected to contribute extra contributions to Social Security and Medicare if you are an independent contractor. Employed persons have roughly half of these contributions paid by their employer via payroll taxes.
How do I show proof of income if I get paid in cash?
Revenue providers are expected to report payments to you via form 1099-MISC. This form acts similarly to a W2 provided by employers to employees. Most businesses will want to report payments made to you as a business expense, and 1099-MISC formally establishes the business relationship to justify those deductions.
Regardless of whether or not you receive a 1099, you should also keep a separate record of all income obtained along with the date, provider, and a note to explain how the income was earned. You may be asked to provide bank statements to prove your income beyond this documentation.