NEW TAX LAW AND THE GIG ECONOMY
NEW TAX LAW AND THE GIG ECONOMY
Attractions and Aversion for Workers and Employers
The 21st Century worker landscape is rapidly gaining altitude in the gig economy sector … that’s the increased motivation and availability by both employers and workers, respectively, to hire and be hired as independent contractors.
The percentage of workers that make up the gig economy is reported in wide swings depending on the source. Even the Bureau of Labor Statistics has admitted difficulty in counting the exact number of independent contractors and contingent workers. That said, one reliable statistical resource, Intuit, estimates that gig workers represent 34 percent of the workforce, and will grow to be 43 percent by 2020.
Driving this growth is the internet and its capability to support workers functioning remotely from their employer. Additionally, successes such as Uber and Airbnb has called attention to many who had not considered the potential to perform as contingent workers either as their primary occupation or, in current vernacular, as a side-hustle.
The Tax Cuts and Jobs Act
Now the new tax law may accelerate that trend by rewarding workers who convert their status as employees to that of independent contractors. A distinct benefit under the new tax law is the “20% pass-through” tax deduction. In simplest terms, this allows sole proprietors, partnerships and S Corporations to deduct 20 percent of their “qualified business income” from their taxable income … meaning only 80 percent would remain taxable.
Admittedly, it’s difficult to predict how many workers will choose this route. For couples filing jointly, $315,000 is the cap above which the deduction is phased out. That said, joint filers who approximate that figure could find it to be a compelling option to make the change. Estimates are that the tax savings could approximate $15,000 per year in this scenario.
Many employers may benefit from this new provision in the tax law as well … particularly those who are seeking to reduce their payroll costs. Often independent contractors tend to be cheaper, plus payroll taxes that are the employer’s responsibility are passed on to the contingent worker.
Consider This
So caution to workers is the prudent route before taking steps to convert from employee to gig worker. Here are just a few considerations:
- Loss of unemployment insurance;
- No longer covered by workers compensation;
- No predictable, steady income – subject to peaks and valleys of assignments;
- Need to pay both the employer and employee portion of federal payroll taxes;
- The Department of Labor and IRS have increased scrutiny in determining a workers status as truly being an independent contractor or must be treated as an employee.
As ever, we stand ready to help. A phone call or email to Pearson & Co. is all it takes.
