Do you pick up riders in your car, rent out a spare room in your summer home or perform various other services for customers? If so, you are likely participating in the “gig economy” that is rapidly growing in popularity around the country. For many people, this is a good way to earn extra money in their spare time or adopt a more flexible lifestyle.

But you cannot overlook the tax repercussions for working in the gig economy full-time or on a part-time basis. Generally, you will owe income tax on your earnings, as well as being responsible for meeting payroll tax obligations. To provide more information to these workers, the IRS has just launched a new Gig Economy Tax Resource Center.

Background: For starters, whether you are a driver for Uber or Lyft or a provide another service, there is no such thing as a “free ride.” The income you earn from your gig economy job is taxable—period. Generally, you are classified as an independent contractor, rather than an employee, with certain exceptions (e.g., you are an officer of the company providing the service). Therefore, you must report your income from the activities annually on your tax return, just like other self-employed individuals.

Typically, you will receive 1099 forms from your gig economy jobs, which are then transferred over to Schedule C. The exact type of 1099 depends on the nature and volume of your activities. Conversely, company employees receive a Form W-2 from their employers.

Caution: Being self-employed may cause tax complications that regular employees do not face. Notably, instead of having taxes regularly withheld from your pay, you must be proactive about making “estimated tax” payments to the IRS. Otherwise, you could be assessed tax penalties and interest on the amounts you fail to pay, plus any regular tax that is owed.

The required amount of tax can be paid through any combination of quarterly estimated tax payments and regular income tax withholding. For example, if you are employed at another job, you could increase your withholding to compensate for the extra tax that will be due from a gig economy job.

On the plus side, if you are self-employed in the gig economy, you are able to deduct your “ordinary and necessary” business expenses, subject to the limits otherwise imposed under the tax law. These business deductions can offset taxable income.

Finally, working in the gig economy may raise state tax issues. For instance, controversial California law AB5, which went into effect on January 1, 2020, requires most workers to be treated as employees who are eligible for certain protections. Check out the applicable state tax implications for your situation.

Parting thoughts: If you are unsure about your tax obligations as a participant in the gig economy, you may refer to the new Gig Economy Tax Resource Center. When needed,  you should obtain personal guidance from your professional tax advisor.