The gig economy is now a force to be reckoned with. As the data comes in, it is becoming more and more apparent that American workers are throwing off the shackles of traditional employment in favor of contract work. And while the gig economy may be a very good thing for independent-minded workers, it is turning out to be a bad thing for the IRS. Bloomberg reports that the growth in contract work is negatively affecting IRS revenue collections.
According to Bloomberg’s Michael Trimarchi, upwards of 34% of America’s gig workers have no idea they may be required to pay quarterly estimated taxes. If they are not paying those taxes, the IRS is not getting the regular revenue it needs. Furthermore, gig workers apparently aren’t setting aside money to pay their taxes on time. This further disrupts the government revenue flow.
Trimarchi says that better IRS outreach could help solve their problem. Whether that is true or not is a matter of debate. One thing we can say is that gig workers still have to pay their taxes on time. Ignorance is no excuse when the IRS comes knocking. Therefore, it is incumbent upon gig workers to understand tax law and to make sure they adhere to it.
The Growth of Gig Work
To understand just how the gig economy is affecting the IRS, it might be helpful to better understand the growth of this unique sector of U.S. employment. Check out the following statistics from Jobble:
- 34% of the U.S. workforce is somehow involved in freelance gig work
- 24% of American workers earn money from a digital gig platform
- 60% of American workers view gig work positively
- There are 21.1 million independent contractors in America
- The gig economy adds some $715 billion to the economy annually
- The number of 1099s being issued has grown 22% since 2000 while the number of W-2s has stalled.
These statistics represent the just tip of the gig economy’s iceberg of good news. The data also shows that gig workers are earning more than they did in the past; they are enjoying the benefits of a more flexible schedule; they are happier in their work than they were while traditionally employed.
Problems at the IRS
If the IRS is not openly hostile to gig work, they at least understand that it makes more work for them. The reality is that the gig economy does more than just reduce government revenue streams. It also creates more administrative and enforcement responsibilities for the IRS.
Let’s say a local company employs 100 people making widgets. Imagine if 34% of those people left in order to pursue gig-related work. The IRS would still have the widget company’s tax compliance to worry about. But it would also have an additional 34 self-employed contractors to keep track of.
For the IRS, the gig economy is more than just lost revenue and payroll taxes, explains BenefitMall. It is about enforcing tax laws that self-employed contractors are frequently ignorant of. This increases the cost of doing business at the IRS. And with government budgets being slashed, Washington’s tax collecting arm is just not keeping up with it all.
BenefitMall reminds companies that use gig workers to be mindful of the tax implications of doing so. There is a fine line between independent contractor and traditional employee, a line the IRS does not even know how to walk at times. Companies thinking about bringing on more contractors in favor of new employees should speak with their payroll providers or tax advisers before proceeding.