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Susan Tompor: Gig workers to get hit with big tax surprise next year | News

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Detroit bass player Grover “GT” Tigue knows too well about the wildly varying rhythms of the gig economy.

Tigue has been a musician 24/7 for the past 21 years — working on solo projects and playing over the years with groups including the No Boundaries Quartet, a hip hop group called Mama SOL & Tha N.U.T.S and an R&B funk band called Funkilinium.

But he saw his bookings crash for roughly a year during the pandemic.

The first few months were particularly frustrating, Tigue said, because he was doing 60 to 80 shows a year, including working weddings, before COVID-19 put a stop to live entertainment. He personally got the virus earlier in 2020.

“I didn’t start gigging in 2021 until about April,” Tigue said.

More work, including playing his bass guitar one September evening at the members-only Craft Cannabis Club in Detroit, picked up as the vaccines became more readily available.

One thing the pandemic should have taught everyone who is a gig worker — musicians, dog walkers, delivery drivers, you name it — is that you must keep good records when it comes to your business, mileage, expenses and income.

“It’s the little things like that that we as musicians or gig workers don’t know,” said the long-time Detroiter and 1982 graduate of Chadsey High School on the city’s west side, which closed in 2009.

Tigue, 56, knows musicians who faced more problems than he did trying to collect unemployment because many didn’t keep records. He collected unemployment benefits for a time but he’s still battling a fight for additional money that he claims he’s due.

Tigue studied accounting and finance at Olivet College in Olivet and once even made a 7-minute video in April 2000 to help younger musicians learn about how to seek financial assistance and better understand why they need to pay attention to taxes, keep track of income, and record expenses.

“I try to be the squeaky wheel in my circle of people who are phenomenally talented but don’t know anything else,” Tigue said.

“They don’t recognize how many things they can actually write off.”

The paperwork is needed at tax time — as Tigue learned too well after boxes of records, including his business journal, were lost in a move before he was audited many years ago.

“You need to get a good accountant.”

The downside of picking up extra gig work is that your tax bill might be way higher than you’d imagine. Many times, people don’t set aside the cash, pay taxes as they make money or even know the complicated rules when it comes to income tax obligations.

Next year, many gig workers will be shocked as tougher tax reporting standards go into place and greatly expand how many 1099-Ks are issued to those who make extra money in the gig economy.

While workers should report their income, experts say, much taxable income falls through the cracks and goes unreported now in cases where there isn’t a 1099.

On-demand workers can work in entertainment, drive cars, rent property, freelance, sell goods online, rent equipment, and provide creative or professional services.

“What’s happened is that the IRS was focused on a W-2 economy and created a system that matched W-2s and 1099s and never totally focused on a cash-based ‘gig economy’ such as we are moving toward now,” said Richard Davidson, chair of the taxation and business law department at Walsh College,.

“So, they are playing catch-up, trying to figure out how to raise compliance. Matching payments from payors is their best strategy,” Davidson said.

The tax change was buried inside the American Rescue Act, which was signed into law by President Joe Biden on March 11.

What kind of paperwork do you see?

In general, many people may be familiar with a Form 1099-MISC that can involve payments of at least $600.

Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting, said the 1099-MISC is still used for things like rents, royalties, prizes and awards, medical and health payments and payments to attorneys.

Fantasy sports players, for example, can receive a Form 1099-MISC when they win money.

But those who work in the sharing economy are often seeing a new tax form, known as the Form 1099-NEC. That form is used to report non-employee compensation for the 2020 tax year and beyond. The form was designed to streamline income reporting and applies to nonemployee compensation of $600 or more.

Uber, for example, is issuing a 1099-NEC to its drivers who meet the income standard instead of the 1099-MISC that was issued in the past.

Even if you did not receive a 1099-NEC because you earned less than $600, you’re still required to report your earnings.

What is a 1099-K?

Under the current federal income tax rules, if a person is paid electronically by credit card, debit card or third parties, such as PayPal, those payment networks would be required to issue a 1099-K when the taxpayer is paid at least $20,000 or more and has more than 200 such transactions.

But that threshold will go away in 2022 when gig workers will see a huge shift. If you make at least $600, that’s going to trigger a 1099-K in the future.

As those working in the sharing economy receive more 1099s, they’ll be stuck reporting more of their income. The change will be felt by many, including those who pick up extra money by working for app-based companies and those who sell items online at spots like Etsy and eBay.

According to IRS Tax Gap studies, it’s estimated that 63% of income is misreported when third parties do not provide information to the IRS, such as with a 1099-K, according to a 2019 report on the gig economy by the Treasury Inspector General for Tax Administration.

Why some preach about taxes now

Davidson at Walsh College frequently brings up the tax-related challenges facing those who work in the gig economy to his students.

Many students enthusiastically offer ideas for making money in a gig economy, such as painting custom pet portraits or teaching private violin lessons.

But Davidson said they often don’t have a clue about recordkeeping and usually aren’t thinking through the tax implications.

It’s become a bit of a passion topic for Davidson, who had a 28-year career as in-house corporate tax counsel for Chrysler.

“The goal is to get them thinking about the fact that we’re moving away from a W-2 economy. Everyone is multi-gigging.”

Davidson said he’d like to see more education that focuses on the tax implications and recordkeeping issues, given that the gig economy is expected to grow.

“They’re getting into real trouble because they don’t know what they don’t know,” Davidson said.

The U.S. Bureau of Labor Statistics does not have a definition of the gig economy or gig workers, which can be quite broad, but has looked at various possible categories.

Many gig workers could fall into a group of about 5.9 million contingent workers — those who did not expect their jobs to last, according to 2017 data from the U.S. Bureau of Labor Statistics. That was 3.8% of those employed.

The data also identified 10.6 million independent contractors — or 6.9% of total employment.

The group could also include what’s called “electronically mediated employment” — or short jobs or tasks that workers find through mobile apps that both connect them with customers and arrange payment for the tasks.

In May 2017, the BLS said were 1.6 million such workers, accounting for 1% of total employment.

Why estimated tax payments may be needed

If you’re an employee and getting a regular W-2, your employer is withholding Social Security and income taxes from your paycheck.

But Davidson notes that independent contractors must be responsible for paying both the employer and employee share of Social Security taxes and paying income taxes in a timely fashion over the year.

You’d need to make quarterly estimated taxes on Form 1040-ES. The tax system is structured as basically a “pay as you go” system.

“Guess what? The IRS wants their money on a timely basis,” Davidson said.

If you didn’t pay enough tax throughout the year, either through withholding or by making estimated tax payments, the IRS notes that you risk facing penalty for underpayment of estimated tax. Interest is charged on tax underpayments, as well.

“You can’t afford to be educated 15 months later,” Davidson said.

Antonio Brown, a CPA in Flint, said he works as a musician too and gets paid as a 1099-NEC employee, so no taxes are taken out.

“The biggest mistake that people in the gig economy make is not withholding or paying quarterly estimate taxes on the money that they make,” Brown said.

They overlook the reality that income is subject to self-employment taxes in addition to federal, state, and sometimes local income taxes depending on the individual’s place of residence.

“The self-employment rate is 15.3% on the profits earned,” he said. “On top of that, you are responsible for the federal individual income tax rate, and if you are a Michigan resident, you’re paying 4.25%.”

While some people may realize they’re going to owe federal income taxes on their income, they don’t necessarily plan on self-employment taxes and they’re not thinking about making quarterly-estimated payments.

“I’ve had clients who’ve made $20,000 as a musician walk away owing over $4,000 in taxes for federal and state income taxes,” he said.

What can be done in the last quarter of the year is what is known as catch up payments. The federal quarterly estimates for the current tax year are due April 15, June 15, Sept. 15 and Jan. 15, 2022.

The last quarter of the year is always a good time to evaluate what has happened so far, Brown said, and see what can be done to reduce tax liability.

It becomes important during tax time because the eligible expenses are applied against the income earned, which reduces the tax liability.

Too often people who are new as self-employed drivers or other jobs in the sharing economy do not maintain good records of expenses.

Even something as simple as tracking business mileage, which can be a significant expense, can unfortunately be ignored by someone who isn’t savvy about taxes. You’d also want to track any fees paid to the app or website operator involved with the business.

What if you don’t have the money?

What’s worse, Davidson said, is many people may not be prepared for a big tax bill.

“Some people may panic and not file, which is the worst possible result,” Davidson said.

The statute of limitations never expires on an unfiled return, he noted. And the nonfiler could be scared to file in the future because they fear getting into trouble for the initial year when they didn’t file.

You also cannot ignore the 1099-K forms that show up during the tax season that report some of your income.

“If the IRS sees it, you better have it,” Davidson said.

The Internal Revenue Service even has a “Gig Economy Tax Center” to spell out tax obligations. The site defines the gig economy as “activity where people earn income providing on-demand work, services or goods. Often, it’s through a digital platform like an app or website.”

Gig economy income is taxable and the IRS notes online that you must report income earned from the gig economy on a tax return, even if the income is:

•From part-time, temporary or side work

•Not reported on an information return form — like a Form 1099-K, 1099-MISC, W-2 or other income statement

•Paid in any form, including cash, property, goods, or virtual currency

Making money can be relatively simple for many, but the buck doesn’t stop there. You’ve got to figure out the extra steps to cover the tax bill, too.

(Susan Tompor is the personal finance columnist for the Detroit Free Press. She can be reached at stompor@freepress.com.)

©2021 Detroit Free Press. Distributed by Tribune Content Agency, LLC.

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Gig Apps Hustle for Top in Provider Rankings

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Got a gig? No? Well, go and get one. The apps are there if the will is strong. 

Looking at PYMNTS’ latest Provider Ranking of Gig Apps, it appears that not only are gig workers gigging, but they’re also switching up platforms, seeking faster routes to better placements. 

That’s how it goes in the world of what some call a “side hustle” and others just call “work.” 

However one views it, gig apps are on the move — and that means we are too. 

The Top 5 

Taking it from the top, DoorDash keeps its seat at No. 1, having just inked a reseller pact with United Natural Foods to provide on-demand grocery delivery services to independent retailers. 

Uber Driver is catching up at No. 2, now testing a program in Brazil letting customers pay more for shorter delivery windows. Sounds promising. 

As is its custom these many months, Instacart Shopper sticks at No. 3, fresh from its acquisition of smart cart creator Caper AI. 

Here’s one of those changes we mentioned earlier. The Amazon Flex app gains a spot and moves up to No. 4 this cycle in another win for the diversified eCommerce titan. 

Down a spot to No. 5 (but staying in the Top 5 nevertheless) it’s the Fiverr app, which launched a subscription program for freelancers on the platform a few months back. 

The Top 10 

There’s no lift for the Lyft Driver app this time out as it stays put at No. 6 for another cycle.  

Somehow we don’t see Lyft staying out of the Top 5. Guess we’ll find out. 

The Upwork app keeps its gig as custodian of the No. 7 spot. No change there. 

Another shift to report, this time at No. 8, as the Freelancer app gains one chart position. It’s a good get for the Australian crowdsourcing marketplace website. 

Meanwhile, Grubhub for Drivers drops one chart position to No. 9 this cycle, as apps in this category deal with disruptions in major cities around food delivery under pandemic mandates. 

Rabbits run from predators — and some from hard work — but not TaskRabbit, keeping its cozy warren at No. 10 for another cycle of the Provider Ranking of Gig Apps 

That’s a wrap. Don’t gig too hard out there.    

——————————

NEW PYMNTS DATA: DIGITAL BANKING STUDY – THE BREWING BATTLE FOR WHERE WE WILL BANK

About: Forty-seven percent of U.S. consumers are shying away from digital-only banks due to data security worries, despite significant interest in these services. In Digital Banking: The Brewing Battle For Where We Will Bank, PYMNTS surveyed over 2,200 consumers to reveal how digital-only banks can shore up privacy and security while offering convenient services to satisfy this unmet demand.

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This company is turning gig workers into gig economy shareholders

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As gig economy companies like Uber continue to bring in more money and users, the rising tide has not lifted all boats.

In the last quarter, rideshare and food delivery companies raked in the revenue: Uber brought in nearly $4 billion; DoorDash accrued $1.24 billion; Just Eat Takeaway, which owns Grubhub, made $884 million; and Lyft generated $765 million. But where is that money going?

According to Matt Spoke, CEO of gig economy fintech provider Moves Financial, a lot of it is being spent on drivers, but not in the way you might think.

“[Gig companies] lose hundreds of millions of dollars just on the back of losing workers all the time, churning out of the gig economy,” Spoke told Modern Shipper.

With companies hemorrhaging money on drivers only to see them leave because they feel they aren’t being paid enough, neither gig employers nor gig workers are reaping the full potential benefits of the gig economy. Moves Financial wants to change that.

The company recently announced an initiative called The Moves Collective that will reward gig workers with shares of stock in the very companies they work for, aiming to give them greater leverage in their workplaces.

In addition to rewarding gig workers with a monetary benefit, Moves Financial will give them the power to influence the gig economy platforms they work for at their annual general meetings (AGMs).

“The premise of our business from the very beginning was to figure out how we can step into what seems like an increasingly hostile gig economy and try to find ways to rebalance the economic alignment that seems to be missing between the workers and the marketplaces that they work for,” Spoke explained.

An amplified voice

Spoke recognized a concerning trend among gig employers: low worker retention. Two years ago, when he founded Moves Financial, he noticed that gig workers had a shockingly high turnover rate — as high as 500% for some companies, compared to an average of 3.5% for employees in traditional workplaces.

Initially, Moves Financial was a personal finance platform for the gig economy, but as Spoke recounted, “The goal has always been to sort of evolve that towards something where we can actually meaningfully make a difference in the way that [gig workers are] viewed.”

As he sees it, the way to do that is by giving gig workers a tangible stake in their companies. Gig workers have been up in arms over what they describe as unfair working conditions, staging strikes and protests in order to get employers like Uber (NYSE: UBER), Lyft (NASDAQ: LYFT) and DoorDash (NYSE: DASH) to listen. Gig workers, who are classified as independent contractors under U.S. labor laws, are denied the protections extended to employees under the Fair Labor Standards Act, such as a minimum wage.


Read: Instacart shoppers plan nationwide strike for Saturday

Read: What would a vehicle mileage tax mean for ride-share?


“Petitions and protests and walkouts are not necessarily the most effective way to get Uber to change their strategic priorities,” Spoke said. “But if you show up as a group of shareholders and serve the demands, as such, there’s a greater likelihood that these become priority issues.”

Despite protests, gig companies spent millions pushing forward the passage of California’s Proposition 22, which exempted rideshare companies in the state from AB5. That allowed them to continue to classify their workers as independent contractors and deny them the benefits of employee status.

Spoke said that although some companies like Uber and Lyft have seriously considered awarding stock to their workers, their independent contractor status has been a major impediment.

“If [Uber and Lyft] wanted to do more proactively for their workers, that would be used as ammunition against them to sort of write the case of why they’re acting and behaving like an employer,” he explained. “So if Uber started issuing stock to its drivers, they’d have a really hard time making the case that they are not employing these drivers.”

He also points out that the vast majority of gig workers spend their time on multiple apps, and gig employers may not want to award them stock if they also work for their competition. That’s why Moves Financial is doing it on their behalf — the goal is to help the companies by helping their workers, which would reduce turnover and put the companies on the path to profitability.

“If we can address some of the root issues of why the group is unhappy, then we expect that leads to a more loyal, durable, long-lasting workforce that Uber doesn’t have to spend money replacing every six months,” Spoke said.

Gig workers are making Moves

Right now, gig workers that have a Moves Financial profile, earn more than $500 and drive or deliver for Uber are eligible for the program’s soft release (the company is starting with just Uber as a test). But with the full release, which Spoke says will happen by January, all Moves Financial customers will be able to opt in and receive stock from other platforms.

In its current form, The Moves Collective has two main components. The first is a set of “tasks” that customers can complete in exchange for a reward denominated in company stock. For example, one task is to earn $5,000 on gig economy apps over 90 days, for which a user will be rewarded with $50 in Uber stock.

The second component is a brokerage account that holds the stock for the user. For every user of The Moves Collective, Moves Financial goes through the legal process of creating a brokerage account, which would give workers legal ownership over the stock and the ability to sell it or move it to a different account.

Spoke clarified that Moves Financial is not a trading company and that customers cannot use money in their bank account to buy stock. Rather, the initiative rewards the user with the shares for completing various tasks.

But the other, equally important component of The Moves Collective is a mechanism for communicating with gig company executives. According to Spoke, Moves Financial owns and is currently growing “significant stakes” in Uber, Lyft, DoorDash, Grubhub (NASDAQ: GRUB), Amazon (NASDAQ: AMZN) — which has its own gig worker platform, Amazon Flex — and Target (NYSE: TGT), which owns Shipt.

In doing so, Moves Financial gets a seat at the table — it can submit materials to gig companies’ AGMs as a shareholder.

“What we can then do, in the process of editing those materials, is we can inform our users and inform gig workers in general about the submissions that we’re doing,” Spoke explained. “And the proposals that we’re putting forward, the nature of the submissions that we will work on, will be informed by feedback.”

Spoke emphasized that The Moves Collective will not submit proxy materials on behalf of its gig service workers. Rather, Moves Financial will submit its own independent materials with input from its users and other gig workers. But eventually, Spoke envisions the workers themselves having a larger voice.

“All of a sudden, gig workers, in theory, as they earn their stock, can actually show up to AGMs, they can vote on issues. They’re not necessarily going to carry the heaviest weighted vote. But the very fact of showing up and having a voice changes the dynamic of the conversation pretty dramatically.

“‘One thousand Uber drivers protest in New York City by not driving one day’ is an interesting headline,” Spoke continued. “I think it’s a different headline when we say, ‘One thousand Uber shareholders are demanding change from their company.’”

That could redefine the gig employer-worker relationship.

“We’re really leaning into this idea that gig workers are going to be motivated to join a movement of similar people that live a similar lifestyle and earn their money in a similar way, and that as a group, we can start to influence the way the economy functions,” Spoke said. “The gig economy, to date, has just not had a coordinated group of gig workers speaking as a unified voice. And that’s what we’re trying to build.”

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Payfare to Integrate with Plaid to Enable Digital Financial Services for the Gig Economy

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TORONTO–()–Payfare, Inc. (TSX: PAY), a leading fintech powering instant payout and digital banking solutions for the gig workforce, today announced it is integrating with Plaid, a data network powering the digital financial ecosystem.

Payfare powers faster, digital payments for some of the world’s largest on-demand platforms. In addition to instant access to earnings, its offerings also include full-service digital banking apps and payment cards with cash-back rewards and more.

Plaid enables consumers to connect financial accounts at over 11,000 institutions globally and more than 5,500 apps.

Payfare’s integration with Plaid will streamline onboarding for Payfare users by allowing them to swiftly and securely connect their account to the apps and services of their choosing. Payfare also plans to leverage its Plaid integration to enable new banking features and credit products that are currently under development for launch in early 2022.

“The expansion of our platform to include open banking is part of Payfare’s strategic growth plan to deliver new offerings to gig workers while opening up new revenue streams for the Company,” commented Marco Margiotta, CEO and Founding Partner of Payfare.

About Payfare (TSX:PAY)

Payfare is a global financial technology company powering digital banking and instant payment solutions for today’s gig workforce. Payfare partners with leading platforms and marketplaces, such as Uber, Lyft and DoorDash, to provide financial health for their workforce.

For further information please visit www.payfare.com.

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