A Taxing Gig Economy

By Brielle Diskin

Every year, the second week of April — Tax Day — rears its ugly head and millions of working Americans must deal with some harsh financial realities. But for gig economy workers, like Jeanette Davis, tax season becomes an even scarier time.

This past January, Davis broke her hand and needed to pick up part-time work while out from her full-time job, so she began driving for Uber.

“Out of the $0.76 I make per mile, I have to claim around $0.52 to $0.54 on my taxes,” she said. “Ultimately, including the wear and tear on my car and fuel costs, I’m making around $0.20 a mile.”

Davis said most drivers — especially full-time — don’t keep their receipts for gas or vehicle depreciation for tax write-offs.

Most part-time workers outside of the gig economy are protected by a W-2, but for gig workers a 1099 does not provide the same privileges, especially when it comes to paying taxes.

There are major differences and discrepancies between a 1099 and W2. A 1099 is for independent contract or freelance work and a W-2 form is used for steady employment through a company. If you are employed with a W-2, payroll taxes are taken out of your paycheck monthly and given to the government.

There are legally mandated benefits that stem from W-2 employment. Companies that employ workers with a W-2 versus a 1099 must pay into social insurance programs like unemployment insurance or workers compensation. With a 1099, companies like Uber there’s no mandate requiring them to contribute those benefits and taxes for their drivers. Consequently, drivers don’t receive those same benefits.

Every taxpayer pays taxes towards Social Security and Medicare, W-2 workers pay only half of the taxes owed with their employer contributing the other half, according to Turbotax. For 1099 workers, they have to pay those taxes in full during tax season. Ultimately, W-2 workers have more taxes taken out of their paycheck, but they receive more benefits and pay less come tax season.

According to a study published by the Economic Policy Institute in May of 2018, “[T]he Uber driver W-2 equivalent hourly wage is roughly at the 10th percentile of all wage and salary workers’ wages, meaning Uber drivers earn less than what 90 percent of workers earn.”

The report calculated the income that drivers take home after adjusting their earnings to account for Uber’s fees, and the additional contributions required of independent contractors towards Social Security and Medicare. The gross income or “discretionary compensation” drivers come away with is an average of $10.87 an hour, placing Uber drivers at the lowest fifth percentile of the national population’s earners.

“Generally, I’m not a big proponent for government involvement. But, they’re asking people to do what other companies are allowed to,” explained gig worker Lacey Brown. “They’re using 1099 while other companies use W-2’s.”

“It’s not fair,” said Brown, who runs the blog, Gig Economy Revolution. She has worked for several gig economy companies including, Uber, DoorDash, and Instacart. “These companies should be paying the taxes to the government as well.”

By classifying gig workers as contract employees, companies like Uber and Lyft are not paying their fair share of taxes, instead passing those costs onto their workers, she said.

Brown hopes that by voicing her opinion and encouraging others to do the same, people will begin to take a good hard look at what they’re actually making in comparison with what they’re paying. By speaking out she hopes to help create a fairer gig economy for workers.

“If you’re doing it part time for some quick cash it works, but if you’re doing it full-time you will never be paid enough,” Davis said.