WASHINGTON — The Internal Revenue Service reminds workers in the gig
economy and those who claimed unemployment compensation in 2020 of their
options and where to find information on meeting their tax obligations.
The gig economy refers to income earned providing on-demand work
performing services or selling goods, including driving a car for booked
rides or deliveries, renting out property, selling goods online or
freelance work. Often, customers and service providers or sellers are
brought together through a digital platform on an app or website. Visit
the Gig Economy Tax Center on IRS.gov to learn more about withholding and estimated tax requirements for these types of earned income and paid services.
Taxpayers should collect and keep records and receipts during the year. Recordkeeping can help track income, deduct expenses and complete tax returns.
A record number of Americans applied for unemployment compensation in
2020 due to the pandemic. Anyone who received unemployment benefits
will need to report it on their tax returns.
However, the American Rescue Plan, enacted on March 11, 2021,
excludes from income up to $10,200 ($20,400 if married filing jointly)
of unemployment compensation received in 2020 for taxpayers with
modified adjusted gross income under qualifying thresholds. Any amount
over $10,200 is still taxable for each person. To determine if payments
received for being unemployed are taxable, see the Interactive Tax Assistant on IRS.gov.
For those who have already filed their 2020 tax return and paid taxes
on the full amount of unemployment compensation before the law was
passed, they should not file an amended return. The IRS will
automatically refund money to people who already filed their tax return
reporting unemployment compensation.
The IRS will recompute any credits and deductions claimed on the
original return. However, if the reduction of income now qualifies a
taxpayer for a new credit not claimed on the original return, like the
Earned Income Tax Credit (EITC), those taxpayers will need to file an
amended tax return, Form 1040x, to claim the new credit. Taxpayers can
see if they qualify for the EITC at IRS.gov.
Unemployment benefit recipients should have received a Form 1099-G, Certain Government Payments, from
the agency paying the benefits. The form will show the amount of
unemployment compensation they received in 2020 in Box 1, and any
federal income tax withheld in Box 4.
Some states do not mail Form 1099-Gs. Taxpayers may need to get the electronic version from their state’s website.
Taxpayers who received an incorrect Form 1099-G
for unemployment benefits they did not receive should contact the
issuing state agency to request a revised Form 1099-G showing they did
not receive these benefits.
Taxpayers who are unable to obtain a timely, corrected form from
their state should still file an accurate tax return, reporting only the
income they received. A corrected Form 1099-G showing zero unemployment
benefits in cases of identity theft will help taxpayers avoid an
unexpected federal tax bill for unreported income.
Additionally, if taxpayers are concerned that their personal
information has been stolen and they want to protect their identity when
filing their federal tax return, they can request an Identity Protection Pin (IP PIN) from the IRS.
Generally, by law, unemployment compensation must be included as
income. Taxable benefits include any of the special unemployment
compensation authorized under the Coronavirus Aid, Relief, and Economic
Security (CARES) Act, enacted in 2020.