Fiverr is one of many new services introduced over the past few years that allows people to make a significant amount of money on their own. This service allows people to get paid for completing simple tasks for others. But this service is often used by people who are used to working traditional jobs that bring in standard, expected incomes. They are decidedly non-traditional jobs that require extra knowledge about self-employment and payroll taxes in order to avoid significant penalties.
Tax limitations
The answer to whether or not a person pay taxes on Fiverr depends on the amount of money that they bring in over a year. Fiverr income counts as income that is combined with a person’s standard income and is then reported to the IRS. People with small incomes or modest incomes and large deductions may not end up owing money in taxes over the year. But a person who makes more than $600 will receive a Form 1099 at the beginning of each year. This form reports their income and helps them combine that income in order to determine the tax amount due at the end of the year.
The specific taxes owed
Rex Burgdorfer Medium notes that many individuals also have to pay extra taxes if they make more than $1000 per year through their Fiverr income. Fiverr income over $1000 is subject to self-employment taxes as well as income taxes that should be paid on a quarterly basis. The self-employment taxes are the Medicare and Social Security tax payments that are automatically taken out of employee checks if they work for a company. Fiverr income is independent contractor income which people have to withdraw from on their own. People who do not withhold for these taxes are subject to a $50 fine from the IRS. They may also have to pay the entirety of a yearly non-withheld tax bill by April 15 that could run into the thousands of dollars.
How to handle Fiverr tax payments
Anyone who is making money off of Fiverr needs to evaluate how much money they have received per quarter. According to Rex Burgdorfer Medium, they can start to understand how much they will make in a year and track out how much they may owe. If a person plans on making more than $1000, they should withhold a certain percentage of their income and submit that payment to the IRS after each quarter. This process should continue indefinitely as a person continues to make a substantial amount of money. If they start to spend money in order to make money with Fiverr, they should consult a tax professional as recommended by Rex Burgdorfer Apple podcast and consider establishing their own business where they can take deductions.
Conclusion
Rex Burgdorfer Apple podcast notes that Fiverr is a helpful service for millions of people. But these people need to be aware of the tax consequences of their income and action. Acting as an independent contractor carries tax responsibilities that people do not have to be trained for when they start as a helper. Knowing about Fiverr’s responsibilities is essential for anyone who is considering making substantial supplemental income with this service
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