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Working in the Gig Economy: Taxes on Self-Employment

Many military spouses — and even some service members — have started a business or side job in today’s gig economy. And being your own employer means you are responsible for additional taxes and tax reporting.

In addition to questions about self-employment taxes, this year you may also wonder how changes due to the coronavirus disease 2019 pandemic could affect your tax returns.

Read on for the latest tax information related to COVID-19 and to learn the basics of self-employment taxes.

Free MilTax Services

MilTax’s tax preparation and e-filing software is available from mid-January through mid-October. And MilTax consultants are available year-round to help with your tax questions.

Special COVID-19 provisions for the self-employed

Certain COVID-19-related provisions may affect people who are self-employed, including:

COVID-19-related tax credits. If you were unable to work because you or a family member contracted the coronavirus or quarantined, you may be eligible for a qualified sick leave or family leave tax credit under the Families First Coronavirus Response Act. The American Rescue Plan, which passed on March 11, 2021, extended refundable tax credits to eligible self-employed individuals for up to 10 days of sick leave and family leave taken between April 1, 2021, and Sept. 30, 2021.

Unemployment benefits. People who are self-employed may file for unemployment benefits if they have lost their source of income because of COVID-19. These benefits are taxable as income. If you received unemployment compensation, you must report it on your tax returns. The agency paying your benefits will mail you a 1099-G form with the total benefits you received in 2020.

The American Rescue Plan bill made the first $10,200 of unemployment income tax-free for households with income less than $150,000. This is retroactive to tax year 2020 (the taxes you filed in 2021), so make sure you investigate this option if you received unemployment income.

Schedule C and tax filing

In most cases, self-employment income and expenses are reported on a Schedule C. The net profit, after expenses, of Schedule C income is then reported on your federal tax return. It is the responsibility of the taxpayer to keep track of all their sources of income, even if the source does not report it to you or to the IRS.

Self-employment tax

In addition to regular income taxes on your profits, you’ll also be subject to the self-employment tax. This is the Social Security and Medicare tax paid by those who are not employed by someone else. Anyone who has total self-employment income in excess of $400 per year is required to file a Schedule SE and pay self-employment taxes.

State tax filing

Military spouses may report self-employment income just like their regular income, using the state they are permitted to claim for purposes of taxation.

Non-military income of active-duty service members is not protected under the Servicemembers Civil Relief Act, and service members with income from sources other than the military must file with the state in which the income is earned.

Self-employment can bring tax questions. Military OneSource MilTax offers free online tax preparation and e-filing software, as well as free telephone consultations with a tax professional who understands the special needs of military families. With MilTax, there are no hidden surprises.

Schedule an appointment to speak with a MilTax consultant or financial counselor by calling 800-342-9647, or by starting a live chat. OCONUS/International? Click here for calling options.

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