Do I Have to File Taxes for Instacart if I Made Less Than $600?
Understand your tax obligations for Instacart earnings under $600, including self-employment taxes and record-keeping essentials.
Many gig economy workers, including those delivering for Instacart, often wonder about their tax obligations, especially when earnings are below certain thresholds. This concern arises because IRS rules for self-employed individuals differ from those for traditional employees.
Understanding whether you need to file taxes, even with earnings under $600, is critical for compliance and financial planning.
Federal Income Filing Thresholds
Federal income filing thresholds are a key factor for gig workers like Instacart shoppers. The IRS sets these thresholds based on filing status, age, and income type. For the 2024 tax year, single filers under 65 must file if their gross income exceeds $13,850. This amount increases for those over 65 due to inflation adjustments.
Gross income includes all taxable income, not just wages. For self-employed workers, the situation becomes more nuanced. Even if Instacart earnings are below $600, you may need to file taxes if your total income exceeds the threshold for your filing status.
Additionally, self-employment income has its own rules. The IRS requires anyone with net earnings of $400 or more from self-employment to file a tax return, regardless of total income. This ensures contributions to Social Security and Medicare through self-employment taxes, which are separate from federal income taxes.
Self-Employment Taxes
Self-employment taxes fund Social Security and Medicare, responsibilities typically shared with employers in traditional jobs. For self-employed individuals, the full burden falls on them. For the 2024 tax year, the self-employment tax rate is 15.3%, consisting of 12.4% for Social Security and 2.9% for Medicare. The Social Security portion applies to the first $160,200 of combined wages, tips, and net earnings. Medicare taxes apply to all earnings, with an additional 0.9% for individuals earning over $200,000 or $250,000 for married couples filing jointly.
To ease this burden, the IRS allows self-employed individuals to deduct the employer-equivalent portion of the self-employment tax when calculating adjusted gross income. This deduction only applies to income tax calculations and does not reduce the amount of self-employment tax owed. For example, if your net self-employment earnings are $10,000, you would owe $1,530 in self-employment taxes but could deduct $765 when calculating taxable income.
Handling Form 1099
Form 1099 is essential for gig workers to report income earned outside of a traditional employer-employee relationship. The most common version, the 1099-NEC, is issued to individuals who earn $600 or more from a company in a tax year.
However, even if you earn less than $600 and don’t receive a 1099-NEC, you are still required to report all income. The IRS mandates reporting of all earnings, regardless of whether a 1099 form was issued. Failing to report income can lead to penalties and interest on unpaid taxes. The IRS uses data matching to identify unreported income, so maintaining accurate records of all earnings and expenses is crucial.
Managing Form 1099 goes beyond income reporting. Self-employed workers can deduct business-related expenses, such as mileage, equipment, and supplies, to reduce taxable income. Accurate record-keeping is essential to substantiate these deductions in case of an audit. Using accounting software or apps designed for freelancers can streamline this process and ensure all expenses are properly documented.
Record Retention Requirements
Maintaining accurate records is vital for self-employed individuals, including gig workers. The IRS requires taxpayers to keep documentation supporting income, deductions, and credits claimed on tax returns. For gig workers, this includes income records, business expenses, and any paperwork that could affect taxable income.
The IRS generally recommends keeping tax records for at least three years from the date a return is filed or two years from the date the tax is paid, whichever is later. If you fail to report income exceeding 25% of your reported gross income, you should retain records for six years. In cases of fraud or failure to file, records should be kept indefinitely. These guidelines highlight the importance of an organized and accessible record-keeping system.