While gig-economy payments might feel like a bit of under-table cash in your pocket, the money you make on Introducely is considered official income. So, yes, you may need to pay taxes on it.
Understanding contract income and its impact on how much you pay in taxes can get confusing. We’re not accountants, and if you have contract income and questions about your tax burden, you might want to consult a CPA before April of each year. In the meantime, though, we’ve gathered some information, definitions and basic guidance to help you understand how making money online with Introducely and taxes relate.
Understanding 1099 Income
Introducely payments are considered 1099, or contract, income. A 1099 is an Internal Revenue Service form used to report certain types of payments, including freelance or contract income.
What this means is you receive that income as a self-employed or contract individual. You don’t work directly for Introducely, so you’re not our employee. Because of that, we’re not withholding income taxes from the pay we send and diverting that to federal, state or local tax agencies. That responsibility lies with you. Fortunately, there are a number of helpful guides online that can help you navigate this process.
How Much Do You Owe in Taxes on Introducely Payments?
This depends on a variety of factors, including your tax filing status, how many dependents you have and how much total income you report at the end of the year. When it comes to federal taxes, you have to pay both self-employment taxes plus any income tax percentage that’s appropriate for your tax bracket. You may also need to pay state and local income taxes on the money.
What Are Federal Self-Employment Taxes?
The federal government taxes everyone a certain amount to help cover the cost of the Medicare and Social Security programs. The total self-employment tax rate is 15.3%, and it breaks down to 12.4% for Social Security and 2.9% for Medicare.
If you’re employed and your employer withholds income tax from your paycheck, they usually also cover half of this tax. That means individuals who are paid on a W2 basis through an employer only pay 7.65% in Medicare and Social Security taxes.
Self-employed individuals or those that have contract pay above and beyond their regular employment have to cover the total cost of this tax for that income.
Introducely Pays Via Stripe, Which Handles Tax Reporting
The payments you receive from Introducely will arrive via a secure payment processor called Stripe. The IRS classifies these payments as “third party network transactions,” which means they have to be reported on a Form 1099-K.
However, the IRS sets a threshold for when the 1099-K forms must be sent. According to Stripe, it follows this threshold and will only send you a 1099-K for the tax year if your account meets all of the following criteria:
- The account owner is a U.S. taxpayer or the account is based in the U.S.
- There were more than 200 payments processed to the account within the tax year
- The account received more than $20,000 in payments within the tax year
It’s important to note that Stripe may combine numbers from more than one source to reach these thresholds on your account. If you do other gig-economy work that processes through Stripe, it may add up all your transactions to understand whether you should receive a 1099-K in any given year.
What If You Don’t Get a 1099-K From Stripe or Introducely?
You’re not off the hook for taxes simply because you didn’t meet the 1099-K reporting threshold. You’re obligated to track your income from contracts, self-employment and gig-economy work and report it on your tax returns in most cases.
The IRS does note that if you made less than $400 in self-employment or contract income during the tax year, you may not need to report it. There are exceptions, though, which makes consulting a tax preparer a good idea for many.
How 1099 Income Can Impact Taxes — and Tips for Reducing What You Owe
As you can see, earning an income from the gig economy can impact your taxes. If you normally get a refund due to work at a regular job, the amount of tax you owe on your contract income could simply reduce that refund.
For example, consider this totally hypothetical and simplified example:
- Jessie works as a librarian. She normally gets a tax refund of around $1,000 based on her job income and the number of dependents she claims.
- Jessie signs up for Introducely to use her library and social contacts to make some extra cash.
- At the end of the year, Jessie has made enough that she owes $150 in federal taxes on her Introducely income.
- When she files, the money she owes will be offset from her refund, and instead of the normal $1,000 she typically expects, she may get back around $850.
Now, consider a different example where someone usually ends up owing $500 in federal income tax every year. With added Introducely income, they may owe a little more.
If you expect to owe more than $1,000 when your tax return is filed, you may need to make estimated tax payments quarterly during the year. This is a good way to help reduce the burden of a large tax payment if you intend to make a lot in contract income.
Can You Reduce the Taxes You Pay on Contract Income?
In some cases, you may be able to offset some of what you pay on contract income by claiming related expenses. The IRS doesn’t expect you to pay taxes on income that wasn’t actually profitable.
For example, if you pay $100 to attend an event for the sole purpose of building your network to improve your ability to make introductions on Introducely, you may be able to deduct the cost of that event as a business expense.
The IRS has a lot of rules on what you can deduct as a business expense and when. It has what’s known as the “ordinary and necessary” rule that you must apply to expenses.
Ordinary expenses are common, acceptable expenditures for the business at hand. Someone who makes money from gig economy jobs online may be able to count part of their internet bill or the cost of a computer as ordinary expenses, for example.
Necessary expenses refer to costs associated with things that are helpful and appropriate for your business or contract work. A subscription to Microsoft 365, for example, might be considered a necessary expense for anyone conducting various types of computer work.
To avoid red flag situations that could lead the IRS to audit you, it’s a good idea to work with a tax professional if you’re planning to get into business deductions. If you’re somewhat familiar with contract income and how to report it, you might also use tax preparation software through services such as Turbo Tax. These programs typically include wizards that walk you through entering income and expenses. They ask questions to help determine if you can claim certain deductions.
Remember, too, that if you plan on claiming these types of deductions, you need documentation to back up your claims. Save receipts and emails about subscriptions or online purchase. Even if you don’t think you’ll have enough business expenses to make a difference, keep a folder throughout the year where you can collect these items. Come tax time, you might have enough expenses to make a difference in what you owe.
Don’t Let Tax Worries Keep You From Earning More
Yes, you may need to pay taxes on the income you earn through Introducely. But no one pays 100% in taxes, which means when you earn with Introducely, you’re still putting more cash in your own pocket.
If you’re stacking Introducely income on top of income from a regular job — where the employer is withholding taxes already — you may only notice a small impact to your refund or what you owe at tax time. And if you’re looking to fund your lifestyle 100% with gig economy payments like money from Introducely, understanding your tax burden, planning ahead and making quarterly estimated tax payments can help you manage your finances so taxes don’t feel like such a struggle in April.