• When you join the gig economy, you can use tools like the Payactiv Visa^® Card’s* SmartSpend feature to manage an irregular cash flow.
• It’s wise to prepare for the unique tax circumstances for self-employment and look for ways to save, like taking advantage of Payactiv’s TurboTax deals. 
• When you’re in charge of your operating budget, try to lower expenses as much as possible by shopping around for the best car insurance rates.
• Just because you don’t have access to a retirement account through a traditional employer doesn’t mean you don’t have access to retirement plans. Look into options like Traditional, Roth, and Self Employed Pension IRAs. 

Whether you’re looking for side hustle income or want to start a full-fledged business to help you reach your financial goals, the gig economy can be a great option. While you need to be highly self-motivated to make this income stream work, you can earn money in the world of freelancing and entrepreneurship if you have a strong inner drive.

However, there are many differences in how you’ll need to manage your finances compared to traditional employment. Before you take the plunge, educate yourself on the money moves you’ll need to consider if you want to be successful.

Plan for Irregular Income

One of the biggest differences between working in the gig economy and having a traditional job is the lack of a predictable paycheck. You’ll likely notice huge swings in income throughout the year, and savvy money managers budget accordingly. 

During highly lucrative periods, consider setting aside a larger percentage of your income for savings. That way, when your income slows down, you’ll have a financial cushion to fall back on. 

As you plan a budget around an irregular income, you can monitor spending with the SmartSpend feature in your Payactiv App. SmartSpend automatically splits your expenses into categories and helps you know how much you can safely spend.

Set Aside Money for Taxes

When you’re a gig worker, you’re legally self-employed. This means you have to pay both the employee portion of taxes like Social Security and Medicare and the employer portion. That’s called self-employment taxes, and can be a big surprise to newly self-employed individuals. 

It’s also smart to set aside money to pay your taxes, since you don’t have an employer sending a portion of your income to the government every time you receive a paycheck. Instead, most self-employed workers make quarterly payments throughout the year.

A general rule is to set aside about 30% of your income for taxes. Depending on your state or locality, you may need to allocate more (or could save less) to avoid penalties and fees.

Additionally, filing your taxes can be more expensive when you’re self-employed since you usually have to pay extra for the additional tax forms you’ll need, like Schedule C. You can save on your tax filing as a Payactiv member with our TurboTax discount.

Your Health Insurance Plan Might Be Tax-Deductible

When you’re a gig worker without a W-2 job that offers health insurance or you don’t have access to spousal health insurance benefits, you may end up on an Affordable Care Act (ACA) health insurance plan. You might qualify for government subsidies for these plans depending on your income.

If you don’t have access to any other form of health insurance, your premiums might be tax deductible. This can sometimes mean a huge reduction in your tax burden depending on how much you’re paying for health insurance relative to your income.

Lower Your Vehicle Expenses

As a gig worker, you may use your car for business purposes. Whether you’re using it as a rideshare driver or as a mode of transport to client meetings or industry conferences, a vehicle used for work is an expense that reduces your profits and lowers yours taxes. It’s better to save on costs where you can, and it’s possible to shop around for the best deals.

First, make sure you’re logging your mileage and other vehicle expenses throughout the year. With the proper documentation, these expenses can be tax deductible. In 2023, the standard mileage rate for people who use their cars for work is 65.5 cents per mile.

Second, find the cheapest gas in your area whenever you need to fill your tank. As of publication, the average cost of gas in the U.S. is $3.478 per gallon. If you can find the lowest price per gallon in your city, and it’s not too far of a drive, this can help improve your bottom line.

You’ll also want to look at other ways to lower your costs, like comparing car insurance rates in the Payactiv app and following regular maintenance schedules to avoid larger repairs that can result from neglect. 

You Don’t Need an Employer to Save for Retirement

It’s a myth that you need an employer to save for retirement. As a self-employed person, you have multiple options available to you. 

If you want a retirement plan that will reduce your taxable income today, you can look into the following plan types: 

• Simplified Employee Pension (SEP) IRA: This plan lets you contribute up to 25% of your self-employment net earnings with a maximum limit of $66,000 for 2023.
• Savings Incentive Match Plan for Employees (SIMPLE) IRA: With this plan, you can put all your self-employment earnings into the plan up to a maximum of $15,000 in 2023.
• Self-Employed 401(k): Annual salary deferrals of up to $22,500 are allowed in 2023 when using this plan. Plus, self-employed individuals can deposit an additional 25% of their self-employed earnings. The maximum allowed contributions are $66,000 for 2023.

When you want a retirement plan that will grow tax-free so you won’t have a tax burden in your golden years, you might want to look at other options, like a Roth IRA. 

The Final Word

If you’re self-motivated and can manage an irregular income flow, the gig economy can be more than a side hustle. It could turn into a well-paying full-time job. Just familiarize yourself with all the unique financial decisions you’ll have to make as a self-employed person before you start your journey.

*The Payactiv Visa Prepaid Card is issued by Central Bank of Kansas City, Member FDIC, pursuant to a license from Visa U.S.A. Inc. Certain fees, terms, and conditions are associated with the approval, maintenance, and use of the Card. You should consult your Cardholder Agreement and the Fee Schedule at payactiv.com/card411. If you have questions regarding the Card or such fees, terms, and conditions, you can contact us toll free at 1 (877) 747-5862, 24 hours a day, 7 days a week. 

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