Amazon’s facilities in San Fernando de Henares, the biggest in Spain, during a strike on November 23, 2018.
AFP via Getty Images
Amazon.com has reportedly been ordered to give more than 4,000 drivers delivering packages in Barcelona and across Spain proper work contracts, and cover more than $7.2 million (€6.16 million) in back social security payments.
Thousands of workers at seven fulfillment centers in Germany went on strike earlier this week over pay and conditions during Amazon’s AMZN, -1.23%
busy two-day Prime Day sale. Experts have predicted that Prime Day could generate nearly $10 billion in global sales for the company.
The probe by Spain’s Labor Inspectorate, which stretches back to 2017, reportedly found 3,261 false freelancers at Amazon’s fulfillment subsidiaries in Madrid and Barcelona. It is demanding the company pay €5.16 million over those missing contributions. The investigation found 806 such workers at the Amazon Road Transport unit, with a demand of just under €1 million.
In September, Spain’s Supreme Court ruled that food-delivery workers were employees rather than self-employed, in a specific case involving a former worker for Glovo, a food-delivery service. That ruling was expected to ripple through the gig economy, which likely has expanded during the busy pandemic months in Spain as individuals have stayed at home to avoid COVID-19 infections.
A spokesperson for Amazon didn’t immediately return a request for comment, but told El País that the company disagreed with the ruling and was cooperating with local authorities’ investigation.
Spanish workers and unions have taken action against the company before.
In January 2019, workers at the company’s biggest distribution center near Madrid held a two-day strike just ahead of the Kings’ Day gift-giving holiday. The strike was called by the country’s two big unions CCOO and UGT. Workers at that warehouse also held a strike in 2018 to coincide with Amazon’s Prime Day that took place in the summer.
USA TODAY’s retirement columnist Rodney Brooks talks to Jeanne Thompson, a vice president at Fidelity Investments about what it takes to save a million dollars for retirement.
You may have started gig working to raise some extra cash, to explore self-employment part-time, or to improve your work-life balance. But did you know you can also use your self-employment status to tackle the goal of securing your retirement? As a gig worker, you are likely eligible to open and use a solo 401(k), which is one of the more powerful tax-advantaged retirement accounts available.
The big advantage of solo 401(k)s
The solo 401(k) functions much like a standard 401(k) in terms of tax advantages and contribution limits. What’s different about the solo 401(k) is that you have two roles to play. You are both the employee and employer, and you can contribute in either capacity – which makes for a very high contribution limit. The maximum employee and employer contributions in 2021 is $58,000 annually. If you are 50 or older, you also qualify for an additional $6,500 in catch-up contributions.
Solo 401(k) employee contributions
Unfortunately, you can’t just drop $58,000 in your solo 401(k) and call it a day. You have to play within some extra IRS rules governing contributions. First, the employee-funded solo 401(k) contributions are treated as elective deferrals from your pay. As such, you can’t contribute more than you make in earned income. Earned income is defined as self-employment earnings after deducting half of your self-employment tax and the employer-funded contributions you make for yourself.
You’re also subject to the annual employee contribution limit, which is $19,500 in 2021, or $26,000 including catch-up contributions if you’re 50 or older. In other words, you can contribute up to those limits, but never more than your earned income. If you make $15,000 in self-employment income this year, that’s the most you can contribute as an employee.
Note, too, that these employee contribution limits apply to your cumulative deposits made to all 401(k) accounts. If you also have a regular job and put $10,000 in a workplace 401(k), for example, the most you can contribute to your solo 401(k) for the year is $9,500, or $16,000 if you are 50 or older.
Solo 401(k) employer contributions
When you contribute to your solo 401(k) as the employer, the maximum is 25% of your earned income. This part gets tricky because, as noted, earned income is your self-employment earnings after deducting half of your self-employment tax and your employer-funded contributions. That means your earned income and allowed employer contributions depend on each other.
In true IRS form, there’s a special worksheet and calculation to resolve that circular reference, and it involves discounting the plan’s contribution rate. Follow the math and the true maximum ends up being somewhere around 20% of your net business earnings.
Maximum 401(k) contributions
To reach the $58,000 cap, you’d need to make the full $19,500 employee contribution and then another $38,500 in employer contributions. That would require self-employment income of nearly $200,000. If you can afford to do that today, congratulations. If not, you can see that the solo 401(k) gives you plenty of room to grow into those high-dollar contributions.
How to open a solo 401(k)
You can open a solo 401(k) if you have self-employment income, a federal tax ID number, and no employees. If you don’t have a federal tax ID number, you can apply for one for free at IRS.gov.
Brokerages and mutual fund companies offer solo 401(k)s, but the fee structures and investment options can vary. TD Ameritrade, for example, has no setup or maintenance fees but may charge commissions and service fees for certain actions you take in your account. Your investment options would include exchange-traded securities and mutual funds. A Vanguard solo 401(k), on the other hand, allows you to invest only in Vanguard funds. Most trades are commission-free, but Vanguard does charge $20 annually for each mutual fund held in the account.
You could also choose a provider with a self-directed solo 401(k). This type of account will have higher fees, but it holds a wider range of asset types, including real estate. A Rocket Dollar self-directed solo 401(k), for example, will hold any asset class that’s allowed by the IRS – but you’ll pay $360 to open the account and then $15 a month in maintenance fees.
Contribute and invest
Opening up the account is the easy part. What will be more challenging is making those regular contributions, particularly if your income is inconsistent from month to month. To the extent possible, automate at least a small monthly contribution. Then set calendar reminders to yourself to make a larger deposit quarterly from your available cash.
Make sure, too, that you are investing those contributions. You might start out with an S&P 500 index fund as your primary holding, along with a small position in a U.S. Treasury ETF for stability. Or, if you have another 401(k) through an employer and you’re happy with its performance, see if you can mimic that portfolio in your solo account.
You have what it takes
Saving for retirement relies on the same traits required to be successful as a gig worker: discipline and motivation. Add a solo 401(k) to the mix and you have everything you need to create a comfortable, financially secure future for yourself.
Catherine Brock has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
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You may have started gig working to raise some extra cash, to explore self-employment part-time, or to improve your work-life balance. But did you know you can also use your self-employment status to tackle the goal of securing your retirement? As a gig worker, you are likely eligible to open and use a solo 401(k), which is one of the more powerful tax-advantaged retirement accounts available.
The big advantage of solo 401(k)s
The solo 401(k) functions much like a standard 401(k) in terms of tax advantages and contribution limits. What’s different about the solo 401(k) is that you have two roles to play. You are both the employee and employer, and you can contribute in either capacity — which makes for a very high contribution limit. The maximum employee and employer contributions in 2021 is $58,000 annually. If you are 50 or older, you also qualify for an additional $6,500 in catch-up contributions.
Image source: Getty Images.
Solo 401(k) employee contributions
Unfortunately, you can’t just drop $58,000 in your solo 401(k) and call it a day. You have to play within some extra IRS rules governing contributions. First, the employee-funded solo 401(k) contributions are treated as elective deferrals from your pay. As such, you can’t contribute more than you make in earned income. Earned income is defined as self-employment earnings after deducting half of your self-employment tax and the employer-funded contributions you make for yourself.
You’re also subject to the annual employee contribution limit, which is $19,500 in 2021, or $26,000 including catch-up contributions if you’re 50 or older. In other words, you can contribute up to those limits, but never more than your earned income. If you make $15,000 in self-employment income this year, that’s the most you can contribute as an employee.
Note, too, that these employee contribution limits apply to your cumulative deposits made to all 401(k) accounts. If you also have a regular job and put $10,000 in a workplace 401(k), for example, the most you can contribute to your solo 401(k) for the year is $9,500, or $16,000 if you are 50 or older.
Solo 401(k) employer contributions
When you contribute to your solo 401(k) as the employer, the maximum is 25% of your earned income. This part gets tricky because, as noted, earned income is your self-employment earnings after deducting half of your self-employment tax and your employer-funded contributions. That means your earned income and allowed employer contributions depend on each other.
In true IRS form, there’s a special worksheet and calculation to resolve that circular reference, and it involves discounting the plan’s contribution rate. Follow the math and the true maximum ends up being somewhere around 20% of your net business earnings.
Maximum 401(k) contributions
To reach the $58,000 cap, you’d need to make the full $19,500 employee contribution and then another $38,500 in employer contributions. That would require self-employment income of nearly $200,000. If you can afford to do that today, congratulations. If not, you can see that the solo 401(k) gives you plenty of room to grow into those high-dollar contributions.
How to open a solo 401(k)
You can open a solo 401(k) if you have self-employment income, a federal tax ID number, and no employees. If you don’t have a federal tax ID number, you can apply for one for free at IRS.gov.
Brokerages and mutual fund companies offer solo 401(k)s, but the fee structures and investment options can vary. TD Ameritrade, for example, has no setup or maintenance fees but may charge commissions and service fees for certain actions you take in your account. Your investment options would include exchange-traded securities and mutual funds. A Vanguard solo 401(k), on the other hand, allows you to invest only in Vanguard funds. Most trades are commission-free, but Vanguard does charge $20 annually for each mutual fund held in the account.
You could also choose a provider with a self-directed solo 401(k). This type of account will have higher fees, but it holds a wider range of asset types, including real estate. A Rocket Dollar self-directed solo 401(k), for example, will hold any asset class that’s allowed by the IRS — but you’ll pay $360 to open the account and then $15 a month in maintenance fees.
Contribute and invest
Opening up the account is the easy part. What will be more challenging is making those regular contributions, particularly if your income is inconsistent from month to month. To the extent possible, automate at least a small monthly contribution. Then set calendar reminders to yourself to make a larger deposit quarterly from your available cash.
Make sure, too, that you are investing those contributions. You might start out with an S&P 500 index fund as your primary holding, along with a small position in a U.S. Treasury ETF for stability. Or, if you have another 401(k) through an employer and you’re happy with its performance, see if you can mimic that portfolio in your solo account.
You have what it takes
Saving for retirement relies on the same traits required to be successful as a gig worker: discipline and motivation. Add a solo 401(k) to the mix and you have everything you need to create a comfortable, financially secure future for yourself.
Shutdowns, layoffs and salary cuts brought on by the coronavirus pandemic have left millions of Americans searching for new sources of income. Those who’ve recently turned to gig work may be weeks away from a financial surprise in the form of unexpected tax bills and insurance coverage fine print.
“These are the two key items that most new business owners overlook,” says Chris Russell, a San Diego-based certified financial planner who specializes in business owners and the self-employed.
Don’t consider yourself a small-business owner? Well, let’s start there.
Sure, you’re just running food deliveries. But that simple act makes you a small business in the eyes of the IRS. And that opinion is the only one that counts when it comes to taxes.
“Basically, you’re considered an independent contractor,” says Garrett Watson, a senior policy analyst with the Tax Foundation, a nonprofit organization. “You don’t need to do anything super complicated. You don’t need to incorporate or do anything like that.”
But you do need to pay taxes on any money you earn through gig work. This fact is often an unwelcome, and expensive, surprise for new gig workers. As an employee, income and payroll taxes are automatically withheld from your paycheck. That’s not the case for gig workers, Russell says.
“No taxes are deducted from the money you make as a business owner,” Russell says. “Meaning that you will likely owe a lot of money to the IRS when you file your returns.”
A good rule of thumb: For every dollar you earn doing gig work, save 30% to put toward income and self-employment taxes. Going forward, plan to estimate and pay those taxes quarterly to avoid a penalty from the IRS.
And if you’re thinking “I didn’t earn much. I won’t report it. How will the IRS know?” Don’t. It’ll know.
EXPENSE TRACKING IS YOUR BEST FRIEND
Gig work isn’t all money in the bank. You are incurring expenses, too. Keep track of those as you can likely deduct some of them and lower that tax bill we talked about a second ago.
“Keep good and honest records to take advantage of all deductions that you’re entitled to,” says Ryan Greiser, a certified financial planner in Doylestown, Pennsylvania.
Apps like Stride, Hurdlr and MileIQ automatically track your mileage and expenses, for free or a nominal fee, to help you calculate taxes. Depending on your situation, Greiser says QuickBooks might be worth exploring.
“It is a small investment to track expenses, estimate your quarterly taxes, track your mileage and pay your quarterly taxes online,” Greiser says.
You also want to investigate the nuances of what can and cannot be deducted depending on your slice of gig work, Watson says, pointing to ride-hailing services as an example.
Say you drop a passenger off and drive across town to find your next ride, he says. Can you deduct the cost of gas used in between rides? (You can.) The IRS Gig Economy Tax Center is a good place to find answers to your questions.
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INSURANCE CAN BE COMPLICATED
The IRS isn’t the only agency that needs to know about your new income stream. Your insurance agent needs to be clued in, too. Not disclosing your work could get you dropped from your policy in some cases. And, beyond that, your insurance agent can help you understand what aspects of your gig work are covered.
Transporting food or people? You need to know if your personal car insurance policy covers incidents while you’re on the job (It likely won’t.). Rideshare or commercial auto insurance could fill in the gaps.
While the platform you work on might cover you with a commercial policy, it only kicks in under specific circumstances. It’s important to know the details of that coverage.
Uber and Lyft provide commercial coverage for drivers, but it applies only if you have passengers in the car or are on the way to pick up a passenger after accepting a ride. DoorDash provides liability coverage only and just when food is in your car. Grubhub and Instacart don’t provide any commercial coverage for delivery drivers on their platforms.
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This column was provided to The Associated Press by the personal finance website NerdWallet. Kelsey Sheehy is a writer at NerdWallet. Email: ksheehy@nerdwallet.com. Twitter: @kelseylsheehy.