Uber, Lyft, TaskRabbit, Airbnb, JustPark, Postmates, DogVacay, SideCar, Fiverr—thanks to the sharing economy, today’s young adults have more options than ever if they’re looking to earn some extra cash.
But navigating our outdated tax code can quickly become more confusing than picking passengers up at the airport.
Filings and Forms and Fines Oh My
The tax laws for independent contractors—how most sharing economy workers are classified—are a convoluted mess. Figuring out how much you owe, how often you should pay and what forms you need to file is a frustrating, time-consuming and potentially expensive process.
A recent article from Reason explains why filing taxes can be overwhelming for sharing economy workers.
Under current law, payments for more than $600 to independent contractors or other non-employees are reported to the feds via Form 1099-MISC, and a copy of the form is also provided to whomever earned the income. But if payments are made via credit card—as many transactions in the gig economy are—and those payments exceed $20,000 or the number of transactions exceeds 200, they are reported via Form 1099-K. Banks and other “merchant acquiring entities” must report all payments no matter the amount, while “third party settlement organizations” must only report transactions exceeding the $200,000 threshold.
Simple enough, right?
Unlike traditional jobs where employers file forms and withhold taxes, independent contractors have to navigate the complicated process on their own. Workers don’t need to make much before they need to make quarterly tax payments, deduct the right amounts and file forms properly. If they’re not careful, they can either run afoul of the law or pay way more in taxes than they should.
A Little Help Here?
The process is so confusing that most new gig economy workers turn to online forums for help. After all, it’s cheaper than talking to an accountant, right?
But questions about how to properly file, how to determine how much the IRS gets and how to keep from getting audited usually cause message board chaos. As Reason puts it, “’Please contact an accountant,’ was probably the best—or at least the clearest—piece of guidance.”
Of course, paying an accountant to sort out a side hustle sort of defeats the purpose of earning extra cash. As a result, people may avoid sharing economy jobs and lose out on the chance to earn money in a flexible way that allows them to set their own schedule.
Smartphones Aren’t Sci-Fi Anymore So Why Is Our Tax Code Stuck In The Past?
The sharing economy tax headache is just another reason why it’s time to overhaul our tax code. The last time Congress tackled tax reform was in 1986, when smartphones were science fiction.
Because independent contractors set their own schedules, the sharing economy can be a great tool for single parents, college students, office workers and other people looking to make money on the side. By simplifying our tax code, Congress can make it easier for them to save money, pay bills or splurge.
If you’re ready for tax reform, click here to tell lawmakers it’s time to unrig our economy.