No one likes paying taxes, but filing taxes is especially bothersome for gig workers. As independent contractors, they are required to keep track of their own incomes and make quarterly estimated payments, unlike most employees, and they pay double the tax rate employees pay for Social Security and Medicare because the companies they drive for don’t match their contributions.
So far, that hasn’t stopped 16% of Americans –– that’s nearly 53 million people –– who earned money on gig platforms in 2021 because only gig workers making $20,000 or more per year were subject to reporting taxes themselves. But a shakeup is on the horizon.
Buried in the stimulus bill signed by President Joe Biden in March is an amendment to the tax code that will place even more of the tax reporting burden on gig workers, and that could spell trouble for third-party delivery services that rely on independent contractors to cover the last mile.
The new tax reporting standards, which take effect next month, will lower the tax reporting threshold on income from electronic payments from $20,000 to $600. Since gig workers are generally paid electronically by the apps they work for, that means gig workers who make $600 or more in a year will now be subject to reporting their own taxes. And that’s a big deal because millions of gig workers didn’t meet the previous threshold but do meet the new one.
Watch: Getting into the gig economy
Until now, only gig workers making $20,000 or more on 200 transactions annually received a Form 1099-K, which shows their gross income from gig platforms. But starting in January, companies will need to send workers the form if they make $600 or more annually, regardless of the number of transactions.
“Some of those apps provide good tools to sort of have a history of all the work that you’ve done and things like that,” Sanish Mondkar, CEO and founder of workforce management platform Legion, told Modern Shipper. “But this imposes some additional work that workers, as well as employers, will have to do to actually report the right things when it comes to filing taxes.”
For the most part, gig companies have decried the new reporting standards because they fear they would result in extra costs for them and scare away users. TechNet, a trade group that includes Grubhub, DoorDash, Lyft, Postmates and Uber, released a statement on behalf of its member companies characterizing the changes as “fly-by-night taxation of gig workers and small business owners.”
While Mondkar predicts that gig platform users by and large aren’t going anywhere, he acknowledges that the new standards might turn away some gig workers who use the services sparingly.
“And that’s a large number of people, because that was the promise of the service –– it’s not a job, it’s a side hustle. It’s a gig. You can turn it on, you can turn it off, you don’t have to commit to it longer term and things like that,” he said.
But in his view, the new tax reporting standards bring gig work more in line with full employment while retaining its low barrier to entry. And as long as gig work is as easy as downloading an app and pressing a few buttons, he predicts the majority of gig workers will still find the platforms attractive.
“These are jobs –– these are real jobs –– and there are millions of people who work these jobs. And I think we see a gradual shift in them bringing in all the considerations that any job has in terms of employer obligations, employee obligations, those types of things,” Mondkar said. “I personally don’t think it will fundamentally change the attractiveness of the job, ultimately, because the ease of signing up for a job and executing it still trumps any taxation type of implication.”
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Mondkar also believes that the new standards might not be a bad thing for gig companies. Gig employers have an opportunity to leverage the changes to make their positions more attractive by providing guidance to their workers, differentiating themselves from other platforms.
“They are dependent on this workforce that’s very fundamental for their business. So anything that they can do to make it a little bit more attractive, a little bit more easy for new people to come into their workforce, it’s just gonna make them stand out,” Mondkar explained.
Mark Warnquist, CEO and co-founder of gig economy insurance platform InShare, agrees: “I do not expect the new tax reporting requirement imposed on payment apps to have much of an impact on mainstream gig workers or the companies that utilize their services. All of the gig companies with which we work or are familiar have always been tax compliant to the best of our knowledge.”
Mondkar even thinks that the new standards could wind up helping gig workers because they will ultimately create better jobs. The changes bring gig workers closer in line with full-time employees, which he believes is the way the industry is headed.
“Over a period of time there’s this convergence. Brick-and-mortar jobs, hourly jobs, are providing more and more flexibility … while gig jobs are now adding more compliance and tax reporting and things like that,” Mondkar explained. “So we see that convergence happening.”
Though the tax reporting changes will place a greater burden on gig workers to accurately report their earnings, they also present an opportunity to improve their working conditions. If gig companies embrace the new standards and provide assistance to their workers, it could not only help them avoid run-ins with the IRS but also make gig work more attractive.
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