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1 1 (August 11, 2021)

handle is hein.crs/goveehi0001 and id is 1 raw text is: Tax Treatment of Gig Economy Workers August 11,2021 The gig economy (or sharing economy) is a form of work relationship that has become popular in recent years. Gig economy workers earn income by providing on-demand work, with gigs often facilitated through digital platforms. This In Focus provides an overview ofhow gig economy workers are taxed and reviews recent legislative changes. What [s the Gig Economy? There are three parties to a gig economy transaction: the worker, a digitalplatform, and a consumer. Digital platforms, such as Uber, Airbnb, DoorDash, and TaskRabbit, match workers with consumers and often process payments. Many platforms also setrates for work. Because the digitalplatforms act as intermediaries, workers and consumers often h ave les s interaction with each other (in terms of advertising, contracting, payment processing, etc.) than in other freelancebusiness relationships. Participation in the gig economy is widespread. Although the major digitalplatforms are the best known, many gigs predate theinternet and do notuse digitalplatforms. For more on the gig economy and whatit means for workers, see CRS Report R44365, WhatDoes the Gig Economy Mean for Workers? The tax treatment of gig economy workers is very similar to that of other self-employed workers. The gig economy is sometimes called the 1099 economy, named afterthe series of IRS forms that income is reported on. The particular Form 1099 that gig economy workers receive depends on the work they doandthe platform's legal structure. In many cases, a gig economy worker (and the IRS) will receive a 1099-NEC (a new form that replaced some functions of the 1099-MISC) or 1099-K froma platformthey performservices for. Gig economy workers are independent contractors-broadly, workers who provide a service but are not employees of the organization. (In contrast, traditional employees are sometimes referred to as W-2 employees reflectingthe information return on which their employee compensation is reported.) What Taxes Are Gig Economy Workers Subject To? Gig economy workers are generally subject to the same taxes as other self-employed individuals. They calculate theirliabilities and pay any unpaid taxes as part of their individualincome taxreturns (i.e., IRS Form 1040). Gig economy workers owe federal income taxand social insurance taxes onincome they receive, comparable to the taxes W-2 employees owe. (For self-employed workers, socialinsurance taxes are oftenreferred to as self- employment tams, discussed below.) Since gig economy workers are often paid as independent contractors, the tax code treats gig economy workers like sole proprietors, the single employee of an unincorporated small business. Income Taxes Gig economy workers have the s ame federal income tax obligations as traditionalemployees, and are subject to the same taxrates. Net income from gig economy work (revenues less deductions) is subject to federalincome tax, even if the platformdoes notreport it to the IRS. Income tax deductions. Gig economy workers are eligible for the same deductions available to other smallbusiness owners. This allows gig economy workers to deduct certain operating costs to determine net business income. Some deductible expenses include business-relatedmileage in a personal vehicle, equipment and materials needed for work, and the useofa home office. Gig economy workers may also deduct half of self-employment taxes paid as an above- the-line deduction on their individualincome taxreturn s. These deductions are available to gig economy workers whether they itemize their deductions or not. Many of these deductions are not currently available to traditional employees. The 2017 taxrevision (commonly referred to as the TaxCuts and Jobs Act or TCJA; P.L. 115-97) temporarily repealed the deductibility of unreimbursed expenses incurred by an employee for tax years 2018 to 2025 (through the limit on miscellaneous itemized deductions). Qualified Business Income deduction. The TCJA created the Qualified Business Income (QBI) deduction. The QBI deduction allows many gig economy workers to deduct 20% of their net business income fromtheir taxable income. The QBI deduction is available to pass-through businesses with certain income and structure requirements. The deduction is available to taxfilers regardless of whether they itemize deductions and is generally calculated based on net business income (i.e., income less all deductions, including half ofself-employment taxes). Self-Employment Taxes Gig economy workers owe self-employment taxes, a term that generally refers to Social Security and Medicare taxes paid by self-employed workers. Traditional employees pay comparable taxes, statutorily splitting themequally with their employers. Gig economy workers, like self-employed workers more generally, must pay the employee and employer portions themselves. For most gig economy workers, the taxrate is 15.3% (12.4% for Social Security and 2.9% for Medicare) on net earnings fromgig economy work However, as previously discussed, gig economy workers may also deduct half of these taxes as an above- the-line deduction on their federal taxreturn s. https://crs repc

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