- Workers in the gig economy could get short changed when it comes to their Social Security checks in retirement.
- That's because the growing ranks of people who earn money on apps like Uber, Airbnb and Task Rabbit are more likely than traditional employees to misreport their income.
- Social Security benefits are calculated from reported lifetime earnings.
Gig economy workers could get short changed when it comes to their Social Security checks in retirement.
The growing ranks of people who earn money on apps like Uber, Airbnb and Task Rabbit are more likely than traditional employees to misreport their income. That could mean a smaller Social Security check down the road because the benefits are calculated from reported lifetime earnings.
That's the finding from a recent study by Caroline Bruckner, managing director of the Kogod Tax Policy Center at American University and economist Thomas L. Hungerford. The research was funded by the Center for Retirement Research at Boston College.
In 2014, independent contractors didn't pay $3.9 billion in Social Security contributions that they should have, and on-demand workers didn't pay $2 billion, according to estimations by the study's authors.
These estimated shortfalls are just for one year and are likely to grow, Bruckner said.
In 2017, Brad Smith, the CEO of Intuit, which owns TurboTax, estimated that a third of the U.S. workforce earned money from the gig economy — and that share will increase to 43% by 2020.
At the same time, IRS records show the number of filers penalized for underpaying estimated taxes jumped to 10 million in 2015 from 7.2 million in 2010, according to a recent report by The Wall Street Journal.
Part of the problem is that independent contractors and gig workers are not always supplied with tax forms, Bruckner said. And taxpayers are 63% more likely to misreport their income when they aren't subject to payroll withholding at a job or don't receive a 1099 tax form, she said.
The inconsistency of the work can also pose challenges.
"If it's not your primary source of income, you're not going to remember when it comes tax time that you earned $1,000 last summer driving for Uber," Bruckner said.
Nonetheless gig economy workers are responsible for making advance federal and state income tax payments each quarter of the year if their income triggers $1,000 or more in taxes, according to Bruckner.
"The amount a person earns is usually accessible via a platform's dashboard but that is not the taxable income - it's gross profit," she said. "Expenses need to be accounted for and deducted from that to get to taxable income."
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