Personal finance for Millennials
- Viktoriya Barsukova, EA, MBA
- Jul 7
- 30 min read
Updated: Jul 11
Workplace education benefits, the gig economy, and digital assets
By NATP staff
Table of Contents
Overview
Johnson Family
Student Loan Debt
Workplace Benefits
Treatment of Student Loan Payments as Elective Deferral for Purposes of Matching Contributions
Managing Student Loan Debt
Gig Economy
Estimated Quarterly Payments
Digital Assets
Saving for the Future
Millennials, often called Generation Y or Gen Y, are now between the ages of 29 and 44 (born 1981–1996), making them a key demographic in today’s tax landscape. As the children of Baby Boomers, older Gen Xers, and often the parents of Gen Alpha, this generation faces a unique mix of financial and tax challenges.
While many of the tax issues millennials encounter—such as the child tax credit (CTC), the child and dependent care credit, student loans, and education credits—aren’t exclusive to them, these concerns remain central to their financial and tax lives. They have much in common with Gen Z and older generations regarding tax planning, which we’ve explored in past issues. Now, we’re diving deeper into some key tax issues and opportunities specific to millennials in 2025.
Overview
Millennials, having grown up during the rise of the internet and social media, are known for their adaptability to technology. Economic challenges have led many to delay traditional milestones like marriage and homeownership. They are known for being socially and environmentally conscious, often supporting brands that reflect their values.
Having faced more job market volatility than Gen X or Boomers, many are using “side hustles” to supplement income, pursue passions, and gain financial independence. They often leverage their skills to generate extra income while keeping full-time jobs. These additional earnings can give them greater flexibility to plan for early retirement or long-term saving.
As we explore gig work and freelancing, non-traditional investments, and planning for the future, we’ll also connect the dots to discussions from previous TAXPRO issues, mentioning how these tax issues directly impact millennials today.
Johnson family
Meet James, the Johnson family’s resident millennial. At 31, he’s a young professional and a full-time Form W-2 Wage and Tax Statement employee, but like many in his generation, he’s also turned to freelancing for extra income. His side business as a graphic designer, reported on Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship), gives him both creative freedom and financial flexibility.
James is also navigating the realities of student loan debt while balancing life as a single dad to his toddler, Riley. Between his full-time job, side hustle, and parenting, he faces a unique mix of financial and tax challenges—ones that are becoming increasingly common for millennials today.
Student loan debt
In the April TAXPRO issue, we explored student loan debt through the lens of Gen Z. While millennials and Gen Z face this financial burden, their experiences differ. Gen Z is primarily taking on new student debt as they enter college and the workforce, while millennials are more focused on paying down existing balances—though some may still be taking on new loans. Understanding these differences helps highlight the unique financial challenges each generation faces regarding education and long-term financial planning.
A yearly maximum deduction of $2,500 can be taken as an above-the-line deduction (direct deduction from adjusted gross income, AGI) for interest paid on qualified student loans. Student loan interest is deducted on Line 21 of Schedule 1 (Form 1040), Additional Income and Adjustments to Income. For 2025, the deduction is phased out if the taxpayer’s modified adjusted gross income (MAGI) is between:
$85,000 and $100,000 (single, HOH, QSS)
$170,000 and $200,000 (MFJ)
The deduction is not available:
To MFS (married filing separately)
To dependents on another person’s tax return
If MAGI exceed $100,000 ($200,000 MFJ)
Note: The deduction is not available to taxpayers with MAGI above the phaseout range. Many millennials with qualified student loan debt cannot take a deduction or will be subject to a phaseout.
Generally, the Student Loan Interest Deduction Worksheet in the 1040 (and 1040-SR) instructions should be used to calculate the deduction amount. However, if the taxpayer is filing Form 2555, Foreign Earned Income, or Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa, or if they are excluding income from sources within Puerto Rico, they should use the Student Loan Interest Deduction Worksheet in Publication 970, Tax Benefits for Education.
Professional tax preparation software will also include these worksheets.
If $600 or more of student loan interest was paid during the calendar year, the taxpayer should receive Form 1098-E, Student Loan Interest Statement, from the lender. The lender may request a completed Form W-9S, Request for Student’s or Borrower’s Taxpayer Identification Number and Certification. The lender uses this form to obtain the borrower’s name, address, and taxpayer identification number (TIN). The borrower may also use it to certify that the student loan was incurred solely to pay for qualified education expenses.
Impact of MAGI on Student Loan Interest Deduction
Single, Head of Household (HOH), or Qualifying Surviving Spouse (QSS):
If your MAGI is $85,000 or less, you can deduct up to $2,500 or the amount of interest you actually paid—whichever is less.
If your MAGI is more than $85,000 but less than $100,000, the deduction is gradually reduced.
If your MAGI is $100,000 or more, no deduction is allowed due to the phaseout.
Married Filing Jointly (MFJ):
If your combined MAGI is $170,000 or less, you can deduct up to $2,500 or the actual interest paid—whichever is less.
If your MAGI is more than $170,000 but less than $200,000, the deduction is partially reduced.
If your MAGI is $200,000 or more, you cannot claim the deduction—it’s fully phased out.
A taxpayer with a MAGI that falls within the phaseout range determines the reduced deduction in two steps:
Multiply the student loan interest deduction (up to the $2,500 limit) by a fraction:
MAGI minus the lower end of the phaseout range, divided by $15,000 (or $30,000 if married filing jointly).
Subtract the result from (1) from the student loan interest deduction after applying the $2,500 maximum deduction limitation.
Example: student loan interest phaseout
During 2025, James will pay $800 of interest on a qualified education loan. James’s MAGI is $92,500. James files a return as HOH. He must reduce his student loan interest deduction by $400, calculated as follows:
Calculate the reduced deduction: $800 × [($92,500 – $85,000) ÷ $15,000] = $400
Subtract (1) result from the maximum deduction: $800 – $400 = $400
This makes sense using a common-sense approach to test the calculation. James’s MAGI is in the middle of the phaseout range ($100,000 – $85,000 = $15,000; then $15,000 ÷ 2 = $7,500; then $7,500 + $85,000 = $92,500); therefore, the amount of the deduction phaseout would be half of his student loan interest ($800 ÷ 2 = $400).
If James paid more student loan interest than the maximum dollar amount allowed ($2,500), then the $2,500 maximum must be used in the calculation, not the amount he paid.
Example: student loan interest greater than $2,500
During 2025, James will pay $2,750 of interest on a qualified education loan. James’s MAGI is $92,500; he must reduce his maximum deduction by $1,250, calculated as follows:
Calculate the reduced deduction: $2,500 × [($92,500 – $85,000) ÷ $15,000] = $1,250
Subtract (1) result from the maximum deduction: $2,500 – $1,250 = $1,250
Following the same logic discussed above, his student loan interest deduction would amount to half the $2,500 maximum allowed as his MAGI is in the middle of the phaseout range.
The student loan interest deduction can help some borrowers reduce their taxable income when paying off qualified education debt. However, some taxpayers may receive education-related benefits directly from their employers. Many employers offer these benefits to support ongoing learning and ease financial strain, but there’s a catch—no double benefits are allowed. The deduction for qualified education loan interest is disallowed to the extent an employer pays the interest, and the payment is excluded from the employee's income.
Workplace Benefits
Generally, employees must report the value of educational benefits provided by their employer as income. However, there are exceptions to this general rule. Employees can exclude these benefits from income if they are provided under an employer’s qualified educational assistance program [§127], qualify as a working condition fringe benefit [§132(a)(3)], or are paid for under an accountable plan [§62(a)(2)(A)].
The employee cannot take a deduction or credit for any amount excluded from income [§127(c)(7)].
Qualified Educational Assistance Plan
Employees may receive up to $5,250 tax-free each year from their employer for educational assistance under a qualified educational assistance program [§127(a)]. A written plan must be in place, and employees must be notified about the benefit. The exclusion applies to both undergraduate and graduate education, and the education does not need to be job-related—although job-related education may qualify.
Excludable educational assistance includes [§127(c)(1)]:
The employer’s payment of educational expenses incurred by or on behalf of an employee, including (but not limited to) tuition, fees, books, and equipment.
The payment by an employer (paid to either the employee or the lender) of principal or interest on any qualified education loan under §221(d)(1), incurred by the employee for their own education (applicable for payments made after March 27, 2020, and before Jan. 1, 2026, unless extended by future legislation).
The employer’s provision of educational or training opportunities to their employees, including books, supplies, and equipment.
Educational assistance does not include payment for tools or supplies (other than textbooks) that the employee may keep after completing a course of instruction; meals, lodging, or transportation; or any course or education involving sports, games, or hobbies—unless it directly relates to the employer’s business or is required as part of a degree program.
Only employees are eligible for the exclusion for educational assistance [§127(a)(1)]. Employees also include self-employed persons as defined in §401(c)(1) [§127(c)(2)]. Generally, self-employed persons have earned income for a tax year or would have earned income if their trade or businesses had net profits for that year. If shareholders or owners are the only employees, they cannot receive educational assistance under §127. This is because, while shareholders and owners may receive educational assistance, not more than 5 percent of the amounts paid or incurred by the employer for educational assistance during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5 percent of the stock or the capital or profits interest in the employer [§127(b)(3); Reg. §1.127-2(f)(2)(i)].
Employees include retired, disabled, or laid-off employees and employees on leave (i.e., in the U.S. Armed Forces) [Reg. §1.127-2(h)(1)].
As mentioned above, an exclusion from gross income for loan payments made by an employer on an employee’s qualified education loan incurred for the employee’s education can also be a benefit provided under an educational assistance program [§127(c)(1)(B)]. However, a payment of principal or interest by the employer on a loan incurred by an employee for the education of the employee’s spouse or dependent may not be excluded from the employee’s gross income, and a payment by the employer on a loan incurred by an employee’s parent for the employee’s education may not be excluded from the parent’s or the employee’s gross income [Fact Sheet 2024-22, June 2024, Q&A 6]
Qualified student loan payments must also be aggregated with any other educational assistance the employee receives when applying the statutory maximum of $5,250. Generally, educational assistance above $5,250 is taxable as wages unless it qualifies for exclusion elsewhere (e.g., working condition fringe benefit).
For additional information, see the IRS document “Frequently Asked Questions about Educational Assistance Programs” (FS-2024-22, June 2024).
Educational assistance payments excluded from an employee’s income may be reported on Form W-2, Wage and Tax Statement, Box 14, Other.
Suppose employer-provided educational assistance does not qualify for exclusion from income under §127. In that case, it is income to the employee unless it qualifies to be excluded from income under another code section, such as a working condition fringe benefit [§132(j)(8)]. Working condition fringe benefits are not reported on Form W-2.
Working Condition Fringe Benefit
A working condition educational expense fringe benefit is any property or service provided by an employer to an employee that is excluded from the employee’s income as long as the cost of the property or service would have been deductible by the employee under §162 (as a business expense) or §167 (as a depreciation deduction) if the employee paid for it. The working condition fringe benefit must be job-related.
Note: For tax years 2018–2025, the TCJA suspended miscellaneous itemized deductions, so employee business expenses are not deductible for these years. This likely does not impact the fact that working condition educational fringe benefits are still excludable. The argument behind this is two-fold: Congress did not specifically suspend the exclusion of qualified working condition fringe benefits (i.e., they specifically mentioned moving expense reimbursements are taxable), and second, the working condition fringe benefit requirements mention Code §162 and §167 (i.e., there is no mention of §67 (2% floor on miscellaneous itemized deductions), which suspended work-related expenses).
To qualify as job-related, the educational assistance has to maintain or improve skills required for the employee’s current job or comply with certain express employer-imposed conditions for continued employment [Notice 97-60, Sec. 7, Q&A 3, 1997-2 CB 310]. The education cannot qualify the employee to meet the minimum educational requirements in their employment or other trade or business. It also cannot qualify the employee for a new trade or business. For additional guidance and examples, see Publication 970, Tax Benefits for Education.
There is no dollar limit for job-related employer educational assistance that is a working condition fringe benefit.
Example: Working Condition Fringe Benefit
The school district requires Jennifer, a teacher, to take college classes each year. These classes are in addition to the minimum teaching requirements she has already met to maintain her job. The college classes are considered job-related educational assistance and non-taxable to her as a working condition fringe benefit.
See IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits, for more information on educational expenses as working condition fringe benefits. Also refer to Reg. §1.132-5, working condition fringes, for more details.
Accountable Plan
An employer can take a business expense deduction for amounts paid to, reimbursed to, or paid on behalf of an employee’s work-related education. An accountable plan is defined in Reg. §1.62-2(c)(2). For amounts paid for educational assistance to be treated as paid under an accountable plan, the reimbursement or other expense allowance must meet a business connection requirement, a §274 substantiation requirement, and a requirement that amounts received in excess of expenses be returned.
Education expenses more than reimbursements under an accountable plan are miscellaneous itemized deductions, which are currently not deductible by the employee.
In addition to the above-mentioned workplace benefits, some employers with 401(k) and similar retirement plans have amended their plans to provide matching contributions based on eligible student loan payments made by their participating employees. For employers, Notice 2024-63 applies to plan years beginning after Dec. 31, 2024, and provides Q&As for plan sponsors. More IRS guidance is expected.
Treatment of Student Loan Payments as Elective Deferrals for Purposes of Matching Contributions
For plan years beginning after Dec. 31, 2023, an employer is permitted to make a matching contribution to a 401(k), 403(b), 457(b) plan, or a SIMPLE IRA for an employee that equals the qualified student loan payments (QSLPs) made during the year. This is allowed under the Setting Every Community Up for Retirement Enhancement 2.0 Act (SECURE 2.0).
A QSLP is a repayment made by an employee for a qualified student loan they took to cover qualified higher education expenses. A qualified student loan (also referred to as a qualified education loan) is any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses incurred by a student who is the taxpayer, the taxpayer’s spouse, or a dependent of the taxpayer as of the time the indebtedness was incurred [§221(d)(1)].
The employer benefit could help millennials manage the challenge of student loan debt and retirement savings. Some employees may prioritize paying off these loans over saving for retirement, potentially delaying their ability to build a retirement account. Despite QSLPs being treated as employee elective deferrals for purposes of making employer matching contributions, they are not treated as contributions to the plan for any other purpose [§401(m)(13)(B)(ii)]. Therefore, they do not qualify for the retirement saver’s credit [§25B] and are not included on Form 8880, Credit for Qualified Retirement Savings Contributions.
Example: QSLP and Matching Contributions
James’s employer matches 100% of 401(k) plan elective deferrals up to 4% of eligible compensation, including a match on QSLPs. For 2025, James had $3,600 in QSLPs.
James is paid $45,000 in eligible compensation and has met the QSLP requirements.
James is currently undecided about how to manage his elective deferrals and student loan payments. He consults with his tax professional, who presents him with three options.
Option one: No elective deferrals
James does not make any elective deferrals to the 401(k) plan; however, his QSLPs are essentially treated as an 8% ($3,600 ÷ $45,000) elective deferral. His employer makes a $1,800 ($45,000 × 4%) matching contribution to his 401(k).
Option two: 2 percent deferral
James defers 2% of his compensation, or $900 ($45,000 × 2%). As we see in the table at top right, his QSLPs are treated as an 8% elective deferral. Since his employer matches 100% of deferrals up to 4%, James qualifies for a 4% match, totaling $1,800.
Option three: 4 percent deferral
James defers 4% of his compensation, or $1,800. His QSLPs do not benefit him. He is eligible for the 4% maximum employer match of $1,800.
The employer matches 100% of deferrals up to 4% of salary in all options. The main difference is the amount James personally defers. The total contribution increases with higher deferrals; however, the employer match stays the same regardless of what James contributes. James must now decide how much to defer from his salary into his 401(k).
Managing Student Loan Debt
When managing student loan debt, practitioners may field questions from clients regarding two common strategies—refinancing and loan forgiveness.
Refinancing
Student loan refinancing involves consolidating one or more student loans into a new loan with a potentially lower interest rate. If the taxpayer has a good credit rating and stable income, refinancing can save money over time by reducing the amount of interest the borrower pays. However, it may not be a good option if the loans are federal instead of private student loans. Federal benefits such as income-driven repayment plans, loan forgiveness options, and postponement options (i.e., due to sickness or unemployment) will be lost if refinancing occurs from a federal student loan to a private student loan.
Student Loan Debt Cancellation
For tax years 2021–2025, cancellation of student loan debt is generally non-taxable [§108(f)(5)].
This non-taxability includes the following student loans:
Non-taxable Student Loan Types (under §108(f)(5)):
Loans used for postsecondary education that are made, insured, or guaranteed by the U.S. government, a state, or a qualified educational institution.
Private education loans.
Loans provided by an educational organization described in §170(b)(1)(A)(ii), if certain requirements are met.
Loans made by tax-exempt organizations under §501(a) when used to refinance a qualified student loan.
If a loan is discharged using the §108(f)(5) rules, no Form 1099-C, Cancellation of Debt, should be issued to the borrower or filed with the IRS.
While student loan debt cancellation offers relief to many borrowers, not all individuals qualify or receive full forgiveness. As a result, many millennials are turning to the gig economy as a flexible way to supplement their income and manage remaining student loan payments.
Gig Economy
Unlike Gen X or Boomers, millennials have faced greater job market volatility, leading many to seek alternative sources of income through the gig economy. Also called the sharing economy, on-demand economy, or access economy, the gig economy allows individuals to earn income by providing on-demand work, services, or goods. This is often done through a digital platform such as an app or website.
Common gig work includes driving for rideshare or delivery services, renting out property, selling goods online, and offering freelance work on demand. Major businesses involved in the gig economy include Uber, Lyft, TaskRabbit, Airbnb, Etsy, eBay, Instacart, and Postmates.
Millennials are the most active generation in the gig economy, with 78% reporting earnings from at least one gig platform, followed by Gen Z at 67% and Gen X at 65%. While only 36% of Baby Boomers currently earn income from gig work, 40% express interest in joining in the future.
The term “gig” comes from short-term or temporary jobs, such as a musician’s gig.
Gig Economy Components
Note: In some situations, the worker may be classified as an employee rather than an independent contractor.
For many millennials, the gig economy isn’t just a side hustle—it’s their primary source of income. Many are opting out of the traditional 9-to-5 job in favor of work that offers more flexibility and control. However, important tax responsibilities come with this freedom. Since most gig workers are classified as independent contractors rather than employees, they are responsible for paying both the employee and employer portions of Social Security and Medicare taxes, making estimated quarterly tax payments, and keeping track of deductible business expenses.
Self-Employment (SE) Taxes
Gross income means all income from whatever source derived, unless it is specifically excluded from gross income by the IRS [§61]. It also includes income realized in any form, whether in money, property, or services. If someone is paid for their services with property or stock, or if they exchange their services for the services of another, they must generally treat the value of the property or services as income [Reg. §1.61-2(d)].
Generally, the fair market value (FMV) of the property received is treated as income in the year received. The FMV of property or services received must be determined according to an objective standard or measure. Neither the Tax Code nor the IRS regulations provide any general definition of FMV for income tax purposes.
Taxpayers working in the gig economy may be subject to SE tax, income tax, and other applicable taxes. A taxpayer is generally self-employed if they are engaged in a trade or business as a sole proprietor, independent contractor, or partner in a partnership that carries on a trade or business. A taxpayer’s SE income is generally their net earnings from self-employment, which equals gross income less allowable deductions from their trade or business, plus the taxpayer’s distributive share of the ordinary income or loss of a partnership engaged in a trade or business [Reg. §1.1402(a)-1].
A trade or business is generally an activity carried on for a livelihood or with the intent of making a profit, even if it does not make a profit [§1402(c)]. For taxpayers who have a full-time job and participate in the gig economy, a part-time activity can be considered self-employed income even if the taxpayer has wages as an employee.
The tax rate on SE income is 15.3%, which includes 12.4% for Social Security (Old-Age, Survivors, and Disability Insurance (OASDI)) and 2.9% for Medicare hospital insurance (HI). For 2025, the OASDI rate applies only to net earnings from SE up to $176,100. Suppose the individual is also paid employee wages subject to the Federal Insurance Contribution Act (FICA) or railroad retirement tax during the year. In that case, the $176,100 limit is reduced by the amount of wages on which these taxes were paid.
The Medicare rate applies to all net SE earnings and is not subject to a wage limitation. The Medicare rate increases by an additional 0.9% (3.8% total) if the taxpayer’s SE income for the year is more than $200,000 ($250,000 MFJ; $125,000 for MFS). Medicare wages (for an employee) and SE income are combined to determine if income exceeds the threshold.
Taxpayers will generally determine their SE tax using the net profit (loss) amount from Schedule C (Form 1040) or Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc. The SE tax and deduction are computed on Schedule SE (Form 1040), Self-Employment Tax.
In cases of a married couple filing a joint return, each spouse must file a separate Schedule SE (Form 1040) if each spouse is self-employed. Form 8959, Additional Medicare Tax, must also be filed and attached to the federal income tax return if a taxpayer is subject to the 0.9-percent additional Medicare tax.
Schedule SE (Form 1040) must be filed, and SE tax must be paid if a taxpayer’s net earnings from SE (excluding church employee income) were $400 or more, or the taxpayer had church employee income of $108.28 or more.
A self-employed person can deduct one-half of their SE tax liability for the tax year [§164(f)]. The deduction is claimed as an above-the-line deduction in computing adjusted gross income (AGI). The additional Medicare tax is not deductible as part of the above-the-line deduction.
Note: When calculating the SE tax on Schedule SE (Form 1040), SE tax isn’t paid on total SE income. Instead, the IRS allows taxpayers to reduce their net earnings from SE by 7.65% (representing the employer’s share of the Social Security and Medicare tax). This deduction is incorporated into Schedule SE by having the taxpayer multiply net earnings from SE by 92.35% (100% - 7.65%). This adjustment ensures that SE taxpayers are taxed similarly to employees, whose employers pay half their Social Security and Medicare taxes.
Example: SE Calculation
For 2025, James has Form W-2 Social Security wages of $100,000. He has Schedule C profit of $200,000. He also files as HOH. James will multiply the $200,000 by 92.35% (.9235) to arrive at his net earnings from SE of $184,700.
In 2025, only $176,100 of net earnings is subject to the Social Security portion of the SE tax.
After factoring in his Social Security wages, he is left with $76,100 ($176,100 - $100,000) subject to the Social Security portion of the SE tax. His Social Security portion of the SE tax is $9,436 ($76,100 × .124).
Because all his net earnings are subject to the Medicare portion of the SE tax, the Medicare portion of the SE tax is $5,356 ($184,700 × .029).
His SE tax is $14,792 ($9,436 + $5,356). On Schedule 1 (Form 1040), Line 15, James deducts one-half of his SE tax, which is $7,396 ($14,792 × .50).
James is also subject to the additional Medicare tax of $762 ($184,700 - $100,000 = $84,700; $84,700 × .009) on his SE income. His Medicare earnings ($184,700 + $100,000 = $284,700) are above the $200,000 threshold amount. This amount will be reported on Line 11 of Schedule 2 (Form 1040), Additional Taxes.
Lastly, in some circumstances, the gig economy can be a hobby if the activity does not rise to the level of a trade or business. In this situation, no business deductions will be allowed for tax years 2018 through 2025.
Stated another way: for 2018–2025, if the activity is a hobby, the taxpayer will recognize income but no expenses other than the cost of goods sold related to that income. Facts and circumstances will determine if an activity is engaged in for profit. Nine factors to be considered are in Reg. §1.183-2(b).
1099-K, Payment Card and Third-Party Network Transactions
Most gig workers who perform services will receive a Form 1099-NEC, Nonemployee Compensation, if they receive nonemployee compensation of at least $600 during the year.
Some who have accepted payment cards for payments or received payments through a third-party network in the calendar year may also receive a Form 1099-K. This includes:
Payment card transactions (i.e., debit, credit, or stored-value cards), or
Third-party network transactions (i.e., PayPal).
This includes gig workers such as freelance writers, rideshare drivers, delivery couriers, and other independent contractors who often receive payments through digital platforms like Uber, DoorDash, PayPal, or Venmo.
Taxpayers accepting payments on different platforms could receive more than one Form 1099-K. For tax year 2025, a payment app or online marketplace must send a Form 1099-K if the payment for goods or services totals more than $2,500.
Even if taxpayers do not receive a Form 1099-NEC or a Form 1099-K, they still must report any income on their return.
Some individuals mistakenly believe they don’t need to report the income if they don’t meet the Form 1099-K threshold.
As part of an ongoing effort to improve tax compliance, the Form 1099-K thresholds have undergone significant changes. Below is a summary of the changes:
Form 1099-K Reporting Thresholds
Before the American Rescue Plan Act of 2021 (ARPA): $20,000 and at least 201 transactions
2024: $5,000, no minimum transaction requirement
2025: $2,500, no minimum transaction requirement
2026 (per ARPA): $600, no minimum transaction requirement
Additional guidance on the reporting thresholds for third-party settlement organizations is provided in Notice 2024-85.
SE Tax and Estimated Quarterly Payments
SE tax can be a significant obligation for gig workers. Understanding estimated quarterly payments is important. These payments help ensure taxpayers’ tax liabilities are met annually and help avoid underpayment penalties.
Estimated Quarterly Payments
Federal taxes must be paid as income is earned or received throughout the year, either through withholding (if applicable) or estimated tax payments. If taxpayers receive income from gig economy work and no taxes are withheld, estimated taxes may be required to avoid underpayment penalties under §6654.
Individuals, including gig workers, generally must make estimated tax payments if they expect to owe at least $1,000 in taxes after withholding and refundable credits when filing their return.
For those who also receive Form W-2 wages, adjusting withholding via Form W-4, Employee’s Withholding Certificate, can help reduce or eliminate the need for estimated tax payments. (See the April issue for a discussion on the Form W-4.)
Estimated quarterly tax payments must be made in four installments throughout the taxable year [§6654(c)]. These payments are due on:
April 15
June 15
September 15
January 15 (of the following year)
Each installment must be 25% of the required annual payment [§6654(d)(1)(A)].
The required annual payment is the lesser of [§6654(d)(1)(B)]:
90% of the current year’s tax liability, or
100% of the prior year’s tax liability (unless exceptions apply).
If the individual’s AGI for the preceding taxable year exceeds $150,000, they are required to pay 110% of the prior year’s tax liability instead of 100% [§6654(d)(1)(C)(i)]. For married taxpayers filing separately, the $150,000 threshold is lowered to $75,000 [§6654(d)(1)(C)(ii)].
Gig workers can pay estimated taxes in various ways, including:
Form 1040-ES, Estimated Tax for Individuals (by mail)
IRS Direct Pay (online)
IRS2Go App
Electronic Federal Tax Payment System (EFTPS)
Example: Gig Worker’s Estimated Tax Calculation
James, a freelance graphic designer, has a full-time Form W-2 job and earns $10,000 from gig work. Since his employer withholds taxes on his Form W-2 income, he must determine if additional estimated tax payments are needed for his gig work.
James’s taxable income is $75,000, and it is estimated he will owe $1,413 in SE tax on his gig income:
$10,000 × 0.9235 = $9,235
$9,235 × 0.153 (0.124 + 0.029) = $1,413
James’s estimated total tax, including SE tax, is $12,000.
He has $10,500 in federal income tax withheld throughout the year.
He will have a remaining tax balance due of $1,500.
Since he owes more than $1,000, he must make estimated tax payments to avoid underpayment penalties.
His estimated quarterly tax payments will be:
$1,500 ÷ 4 = $375 per quarter
Instead of making estimated tax payments, James could also increase his Form W-2 withholdings by updating Form W-4 with his employer.
Assuming James has 13 pay periods remaining in the year, he would need to increase his federal withholding by about $120 per paycheck ($1,500 ÷ 13 = $115.38, rounded up).
Business Expenses
Understanding and managing estimated tax payments is critical for gig workers.
Tracking business expenses is equally important, as it can significantly reduce taxable income and overall tax liability.
Gig economy workers may deduct all ordinary (common and accepted) and necessary (needed and appropriate) business expenses related to their trade or business.
To take business deductions, the gig worker must be engaged in a trade or business, and the expenses must be ordinary, necessary, and reasonable.
If the gig worker is not engaged in a trade or business (i.e., a hobby), they may still be entitled to certain expenses if the expenses are for the production of income [§183].
Keeping detailed records of expenses is essential.
Expense tracking apps, digital spreadsheets, or accounting software can help gig workers stay organized and ensure they don’t miss out on deductions.
Potential Client Questions
As tax professionals, clients may frequently ask about the tax implications of working in the gig economy. Below are common questions and clear, helpful responses:
Q. When/how is income taxed for federal tax purposes?
A. Income is taxed when received—whether in cash, services, property, or digital assets (like Bitcoin). The fair market value (FMV) of non-cash payments counts as income.
Q. How is income taxed if I provide services and get paid in services, property, or digital assets (e.g., Bitcoin) instead of cash?
A. The IRS treats non-cash compensation as taxable. For example, if you’re paid in Bitcoin, its FMV on the day you receive it is considered taxable income.
Q. Am I an independent contractor or an employee?
A. This depends on the employer’s level of control over your work. Gig workers are typically independent contractors and are responsible for paying self-employment (SE) taxes.
Q. Do I need to pay SE tax?
A. Yes, independent contractors must pay SE tax. The SE tax rate is 15.3%, which includes 12.4% for Social Security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).
Q. Do I need to make estimated tax payments?
A. Individuals—including sole proprietors, partners, and S corporation shareholders—generally must make estimated tax payments if they expect to owe $1,000 or more in taxes when their return is filed.
Q. What federal tax forms must I file to report gig income?
A. Common forms include Schedule C (Form 1040) to report income and expenses, and Schedule SE (Form 1040) to calculate SE tax.
Q. What do I do with the Form 1099s I received?
A. Report all income shown on Form 1099-NEC or Form 1099-K. Even if you don’t receive a form, all income must still be reported.
Q. Can I deduct business expenses?
A. Yes, ordinary and necessary business expenses may be deducted on Schedule C (Form 1040). This includes expenses like mileage, supplies, and home office use.
Q. Do I need to keep tax records?
A. Yes. Keep receipts, invoices, and mileage logs for at least 3 years to support your deductions and income in case of an audit. Keeping records for 7 years is safer, and some documents—such as those related to a home purchase or sale, stock transactions, IRAs, or business/rental property—should be kept even longer.
Time of Year: Key Tax Tasks for Gig Workers and Tax Practitioner Assistance
Year-Round
Key tax tasks for gig workers:
• Track income and expenses
• Set aside money for taxes
• Keep receipts and records of business expenses
• Stay informed of any tax law changes, if applicable
Potential areas of tax practitioner assistance:
• Educate clients on self-employment taxes and deductions
• Recommend bookkeeping tools and best practices
• Advise on estimated tax payments
• Provide ongoing support to maximize deductions
January–March (Quarter 1)
Key tax tasks for gig workers:
• Ensure all Form 1099s are received from the platform(s) where work was performed
• Pay prior year fourth quarter estimated taxes, if applicable
• Gather and review income and expenses for the prior year
• Begin tracking and organizing income and expenses for the current year
• File annual tax return (generally by April 15)
Potential areas of tax practitioner assistance:
• Answer any client questions regarding prior year information and provide guidance on the current year
• Calculate estimated tax payments (prior year fourth quarter)
• Prepare and file the tax return (generally due by April 15)
April–June (Quarter 2)
Key tax tasks for gig workers:
• Pay first-quarter estimated tax payment
• Continue tracking business-related expenses
• Perform a mid-year check-up to reassess revenue and expenses and make adjustments as needed
Potential areas of tax practitioner assistance:
• Adjust estimated tax payments based on income changes
• Advise on possible tax benefits of forming a business entity
July–September (Quarter 3)
Key tax tasks for gig workers:
• Review financial goals and adjust as needed
• Review if any adjustments need to be made to retirement accounts
• Pay second quarter estimated tax payment
• Meet with a tax professional to discuss tax strategies and other planning items
Potential areas of tax practitioner assistance:
• Conduct a mid-year tax review to assess current-year income and deductions
• Provide strategies for retirement savings (e.g., SEP IRA, Solo 401(k))
October–December (Quarter 4)
Key tax tasks for gig workers:
• Finalize bookkeeping for the year
• Reflect on the year and consider adjustments or changes for the next year
• Make final business purchases if needed
• Pay third quarter estimated tax payment
• Pay fourth-quarter state estimate if it provides a tax benefit
• Create a budget for the next year
Potential areas of tax practitioner assistance:
• Identify year-end tax-saving opportunities
• Assist with last-minute issues or questions
Key tasks
Above (and at the bottom of the previous page) is a chart outlining key tax tasks gig economy workers should stay on top of throughout the year. Tax practitioners can provide valuable support to gig economy workers by helping them navigate complex tax rules and optimize their financial strategies. By providing year-round guidance, tax practitioners can help gig economy workers stay organized, maximize deductions and avoid unexpected tax bills.
Lastly, the IRS announces its annual Dirty Dozen list of tax scams yearly. For 2025, two scams particularly relevant to millennials and gig workers are the fake self-employment tax credit and bad social media tax advice. Social media advice continues circulating about a non-existent “self-employment tax credit “that’s misleading taxpayers into filing false claims. Social media platforms routinely circulate inaccurate or misleading tax information, including TikTok, where people share wildly inaccurate tax advice. A tax professional can help self-employed individuals and gig workers navigate legitimate deductions and credits while avoiding fraudulent claims that could lead to audits or penalties.
Digital assets
As the digital economy evolves, many millennials earn income in traditional dollars and digital assets.
For U.S. tax purposes, digital assets are considered property, not currency, If a gig worker receives digital assets as payment for their services, the IRS treats these assets as taxable income. The chart on the next page outlines what happens.
Taxpayers must report all taxable transactions involving digital assets like virtual currency on their federal income tax return, regardless of the amount or whether they receive an information return (i.e., Form 1099). A taxpayer who sells, exchanges or transfers virtual currency held as a capital asset must use Form 8949, Sales and Other Dispositions of Capital Assets, to calculate the gain or loss reported on Schedule D (Form 1040), Capital Gains and Losses. This includes taxpayers who use digital assets to pay business expenses. If a taxpayer receives virtual currency as compensation for services, the income must be reported like other earnings of the same type. This would include reporting it as Form W-2 wages on Form 1040 or business income on Schedule C. If a taxpayer received ordinary income in connection with digital assets that isn't reported elsewhere on the return (i.e., income from forks, staking or mining, which are not wages or capital gain/loss) report this income online 8v, Schedule 1(Form 1040). A gift or inheritance of digital assets is not reported on Line 8v.
Note: The IRS does not accept digital assets for tax payments. Payments of U.S. tax must be sent in U.S. dollars.
Since 2019, the IRS has included a digital asset question on Form 1040, requiring taxpayers to disclose whether they engaged in digital asset transactions. Simply purchasing digital assets with real currency does not require checking "yes." According to the 2024 1040 (and 1040-SR) Instructions, taxpayers may answer “no “to this question if their only involvement in digital assets in the current year is to 1) hold a digital asset in a wallet or account, 2) transfer a digital asset from one wallet or account to another wallet or account, as long as both are owned or controlled by the same taxpayer; or 3)purchase digital assets using U.S. or other real currency, including through the use of electronic platforms such as PayPal or Venmo.
Step-by-Step: Digital Asset Tax Reporting
Step 1: Determine FMV
Calculate the fair market value (FMV) of the digital asset when received.
Use the FMV in U.S. dollars at the time of receipt.
Example: 0.05 Bitcoin (BTC) received × $40,000 = $2,000.
If the taxpayer later sells this BTC, they will owe capital gains tax if the price increases or have a capital loss if it decreases.
Step 2: Report as Income
Include the value as self-employment income.
Report it on Schedule C (Form 1040).
This income is subject to both income tax and self-employment (SE) tax.
Step 3: Track Basis and Holding Period
Record in personal records the FMV at the time of receipt as the cost basis and begin tracking the holding period.
When selling or exchanging the asset, report gains or losses on Form 8949 and Schedule D (Form 1040).
The holding period starts the day after the asset is received.
Step 4: Keep Detailed Records
Maintain proper documentation for accurate tax reporting.
Records should include all receipts, sales, exchanges, or other dispositions, and the FMV of the virtual currency at the time of each transaction.
Track transaction dates, FMVs at receipt and sale, and any other related details to ensure complete and correct tax filings.
Independent contractors paid over $600 in virtual currency must receive Form 1099-MISC, Miscellaneous Information.
Some millennials use digital assets not only as a means of payment but also as a long-term investment tool. Unlike previous generations who used stocks and real estate as investment vehicles, many millennials see digital assets as a way to accumulate wealth and achieve financial independence.
Note: Under current law (as of the date of writing), starting in 2026, brokers must report gross proceeds from the sale of digital assets for transactions occurring in 2025. Tax basis reporting will begin in 2027 for sales occurring in 2026. These regulations apply to brokers who take possession of the digital assets being sold by their customers (custodial brokers). These brokers include:
Operators of digital asset trading platforms
Certain digital asset-hosted wallet providers
Digital asset kiosks
Certain processors of digital asset payments (PDAPs)
Decentralized (non-custodial) brokers will be addressed in future IRS guidance.
Form 1099-DA, Digital Asset Proceeds From Broker Transactions, will be used for reporting. Transitional relief for reporting will be provided in 2025 under Notice 2025-7.
For many millennials, digital assets serve both as a means of earning income and a way to invest for the future. With the rise of the gig economy and freelance work, many millennials are self-employed or working multiple jobs, often without access to traditional retirement benefits. As a result, they may take a more self-directed approach to retirement savings.
Many are looking beyond traditional investments like stocks and bonds and turning to digital assets as alternative wealth-building tools.
Retirement Planning with Digital Assets
For those without access to a company-sponsored retirement plan, tax-advantaged options include:
Roth IRAs
SEP IRAs (for self-employed individuals)
Solo 401(k)s
Some platforms now offer Bitcoin IRAs and crypto-friendly self-directed IRAs, allowing individuals to incorporate cryptocurrency into their long-term savings strategy.
In future issues, we will explore traditional retirement vehicles such as 401(k)s, IRAs, and other employer-sponsored plans. While these are popular across all age groups, we will also highlight millennial-friendly savings approaches that reflect modern financial habits and values.
Saving for the Future
When saving for the future, millennials have one key advantage over older generations: time.
HSAs (Health Savings Accounts)
HSAs are a powerful tool for building a tax-free health care fund.
Because HSAs offer triple tax-free advantages, they are highly effective for tax planning:
Contributions are tax-deductible (or pre-tax if made through payroll). Not in CA State.
Earnings grow tax-free.
Withdrawals for qualified medical expenses are tax-free.
This advantage is especially notable when HSA contributions are made through payroll deductions, as there is no federal income tax withholding (FITW) or FICA tax on those contributions if done by payroll as part of an employee benefit (cafeteria plan), there is no tax on growth and no tax on qualified distributions (used for medical expenses). If the contributions are not made pre-tax, they are generally deductible from income.
An HSA can be considered another savings vehicle. Funds are allowed to remain in the account from year to year, and there is flexibility in when withdrawals can be made. Distributions can be deferred to later years to pay or reimburse qualified medical expenses incurred in those years. Also, distributions can be made in later years to reimburse qualified medical expenses incurred in prior years, as long as the expenses were incurred after the HSA was established. An individual may receive a tax-free distribution from an HSA in later years to pay medical expenses even though the individual no longer has coverage under a high-deductible health plan (HDHP).
Because distributions are not time-limited, if the account beneficiary is using the HSA to reimburse for eligible expenses from prior years, records must be kept indicating that the account owner is eligible to receive the distribution tax-free. This includes:
Documentation of the qualified expense
Records showing that the expense was not paid or reimbursed from another source
Proof that no itemized deduction was taken
Note: An account beneficiary is the individual on whose behalf an HSA has been established [§223(d)(3)].
Because health plans must allow employees to cover their adult children up to age 26, opportunities exist for these adult children to accumulate money in HSAs. These non-dependent adult children may establish their own HSAs and contribute up to the maximum amount each year without impacting how much their parents can contribute.
Generally, medical expenses are low at this age, and money can accumulate tax-free. Any medical expenses incurred can be paid with after-tax dollars. The same opportunity exists for adults covered under their own HDHP. This is a great way for young people to start accumulating money for future medical expenses for themselves, a spouse, a dependent child, or another qualifying individual.
Note: If a married couple’s non-dependent children are covered under the couple’s HDHP, the children could open their own HSA to cover their out-of-pocket costs, since the parents cannot use their HSA funds to cover those costs. In this scenario, the children can contribute the maximum family coverage limit to their own HSA without impacting what the parents can contribute. The parents do not have to split the maximum with the children.
2025 HSA Limits (Rev. Proc. 2024-25):
Self-only coverage:
Contribution limit: $4,300
Minimum deductible: $1,650
Out-of-pocket limit: $8,300
Family coverage:
Contribution limit: $8,550
Minimum deductible: $3,300
Out-of-pocket limit: $16,600
Additional catch-up contribution (age 55+): $1,000
Millennials aren’t just sitting around waiting for an email from their tax preparer—they expect real-time updates, mobile-friendly tools, and proactive advice tailored to their tax lives.
Tax professionals can engage this generation by:
Leveraging secure digital platforms
Offering interactive client portals
Providing insights on key tax matters, including identity protection strategies outlined in IRS Publication 4557, Safeguarding Taxpayer Data
By prioritizing security, convenience, and strategic planning, tax professionals can create a seamless and trustworthy experience for millennial clients.
However, setting clear boundaries is essential. Establishing defined response times, secure communication channels, and office hours ensures a professional relationship that meets millennials’ expectations while maintaining a healthy work-life balance for tax professionals.
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