According to experts, about 40% of Americans work a side hustle earning around $686 per month. Depending on your side job, you may receive most of your supplemental income in cash. Are you reporting your income from your cash paying jobs?
If you answered no, you should get on it as soon as you can. Believe it or not, you’re responsible for taxes on your cash earnings. Don’t know how to report this income?
We’ve got you covered. Here are the steps you should follow to report your income from jobs that pay cash.
1. Keep a Record of Your Cash Wages
Keeping an accurate record of your wages is vital to report your income. While you may receive a form for these earnings, it will depend on your employer and the amount of income generated. Still, you should keep a record to make sure you fulfill your tax obligations and verify the information from your employer’s form.
2. Determine Your Relationship with the Employer
Reporting your cash earnings will depend on your relationship with your employer. Are you an employee or an independent contractor?
If you’re an employee, the company may send you a W-2 for these earnings However, some employers don’t send these forms for cash income, but they’ll take care of any required tax withholdings.
Contrarily, independent contractors need to keep track of their cash income and tax liability. If you earn more than $600, your employer may send you a 1099 form detailing your earnings.
3. Pay Your Medicare and Social Security Tax Liabilities
When you’re an employee, your employer will withhold and pay any applicable tax liabilities like Medicare and Social Security. In contrast, independent contractor employers won’t withhold any tax liabilities.
The government charges these liabilities in the form of a self-employed tax. You can pay them as estimated taxes or when you file your return.
If you choose the first option, you’ll need to make payments year-round following the established deadlines. It’s recommended you consult an accounting professional to calculate and pay your estimated taxes accurately.
4. Report Your Income Using the Applicable Form
Employees report their cash earnings as wages on Line 7 of their 1040 form. Independent contractors will report their cash income and deduct any job-related expenses using Schedule C or Schedule C-EZ.
It will be easier to complete these forms if your employer provides a 1099-MISC Form detailing your earnings. This form details any income provided to someone who isn’t an employee of the company.
Not all employers provide this form to their contractors. If you don’t receive a 1099 Form for your cash earnings, you should check out ThePayStubs Ultimate Guide which details the process you should follow to report this income.
Can Your Report Income From Cash Paying Jobs the Right Way?
You can report your income from cash paying jobs the right way. The first step is keeping and maintaining a record of your earnings from these jobs. Reporting this income will depend on your relationship with the employer.
Are you an employee or an independent contractor? If you’re an employee, it will be as easy as completing line 7 of IRS Form 1040.
As an independent contractor, you’ll need to report it using the Schedule C or C-EZ forms. Keep in mind you’ll be responsible for all tax liability payments if you’re self-employed.
Are you unsure about the best way to report these wages? Consider consulting an accounting expert to make sure you comply with the applicable tax laws.
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