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1 Garrett Watson, Improving the Federal Tax System for Gig Economy Participants 1 (2019)

handle is hein.taxfoundation/imptxsysg0001 and id is 1 raw text is: Improving the Federal Tax System for Gig Economy Participants Garrett Watson' Special Projects Manager Key Findings The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and local levels. We are a 501(c)(3) nonprofit organization. ©2019 Tax Foundation Distributed under Creative Commons CC BY NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org Advances in technology have enabled workers to connect with customers via online platform applications for work ranging from ridesharing to home repair services. The rise of gig economy work has reduced barriers to self- employment, bringing tax challenges like tax complexity and taxpayer noncompliance. Workers who previously relied on employers for withholding of income and payroll taxes must properly calculate, save, and remit income and self- employment taxes. Gig economy workers are more likely to underreport their income or underpay self-employment tax. One survey of gig economy workers found that 34 percent did not know that they may be required to make quarterly estimated payments to the Internal Revenue Service (IRS). Most gig economy platforms use a high de minimis threshold for reporting earnings to the IRS and workers, making it more likely that workers fail to meet their tax obligations. Lowering this threshold may help with information sharing of worker earnings and improve compliance rates. One study finds that workers who receive an earnings report increased their reported income by up to 24 percent. Properly tracking and deducting expenses from gross income is one of the largest challenges for gig economy workers, which can lead taxpayers to accidentally overpay income and self-employment taxes. Taxpayers must determine which expenses may be deducted and divide their expenses between business and personal purposes to calculate taxable income, which can be complicated to determine for mixed-use assets such as ridesharing vehicles or rooms for short-term rental. Options for improving the federal tax system for gig economy work include providing a simplified expense deduction, lowering reporting thresholds, and allowing gig economy platforms to voluntarily withhold income and self- employment tax on behalf of their workers. These proposals would lower tax- related barriers to entering gig economy work, but should be weighed against trade-offs such as making the tax treatment of gig economy participants less neutral. 1 The author thanks the Tax Institute at H&R Block for support of this publication. All opinions expressed are those of the author. FISCAL FACT No. 672 Oct. 2019

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