Is My Airbnb Rental Subject to Self-Employment Taxes?
The rise in popularity of Airbnb rentals is due mostly in part to the relatively stress-free way that someone can earn extra income from their property. The concept is pretty black and white - you rent out a living space (could be part of your home or a separate house altogether) and get paid for it. The gray area is whether or not it’s considered passive income, and if you’re required to pay self-employment taxes on it.
What is self-employment tax?
Self-employment tax is a tax imposed on individuals who work for themselves.
The self-employment tax rate is 15.3% and consists of 2 parts – 12.4% for your contribution to Social Security, and 2.9% for Medicare. It’s similar to the tax withheld from the paycheck of a wage earner (except the employer pays half of the tax, and the employee pays the other half). Self-employment tax is imposed on those with self-employment income of more than $400.
When does self-employment taxation not apply?
If your Airbnb property is rented for 14 days or less (in total for the calendar year), you do not have to report or pay taxes on that income at all.
Here’s where it can get a little tricky…
If the average stay in your Airbnb rental is less than 7 days, the IRS considers this a business and not rental activity. If this is the case, the IRS considers this to be nonpassive income, which is reported on Schedule C of your taxes which is almost always subject to self-employment tax.
HOWEVER, if you are renting out your Airbnb property without providing extra services, you’re exempt from self-employment tax (even if you report it on Schedule C).
When do I have to pay self-employment taxes?
As a host, providing an exceptional experience for your renters is the ultimate goal. Great experiences = great reviews = increased bookings. This often means that you are providing extra services, which means you’re likely subject to self-employment tax.
These extra/substantial services can include:
Changing linens and sheets
Providing fresh towels
Cleaning the rooms during a guest’s stay
Providing hotel-like conveniences such as a coffee maker and coffee
Providing vehicles, bikes, or excursion options
This is where the IRS starts to view your Airbnb more like a hotel which is considered a business and subject to the self-employment tax.
So in terms of avoiding self-employment taxes on your Airbnb rental, less is definitely more.
Does that mean you’re exempt from paying any taxes on your Airbnb rental?
Not at all. You are required to pay federal (and state, if applicable) taxes on earnings. The IRS requires US companies to report gross earnings for all US users who earn $600 or more in the calendar year. If you exceed the IRS threshold in a calendar year, Airbnb will issue you a Form 1099-K. Regardless of the issuance of the 1099-K, this income is taxable and is required to be reported on your tax return.
If taxes were withheld from your payouts during the calendar year, you’ll be provided with the appropriate tax form so that you may account for the withholdings on your income tax return.
Airbnb also offers bonuses, awards, and incentives to its hosts. If you receive $600 or more in the calendar year in this form of other reportable income, you will be issued a Form 1099-MISC/NEC (but again, this income is taxable regardless of the issuance of the 1099-MISC/NEC form issuance and is required to be reported on your tax return).
Renting your property through Airbnb can definitely be lucrative with minimal tax liability if you adhere to the advice in this post. Do you have questions about your Airbnb listing and the taxes you could potentially owe? Consult with the experts at ASE Group today!