We can trace the “gig economy” growth back to the onset of the Great Recession in 2007. Upwork, Amazon Mechanical Turk, and Airbnb were in full swing by the time 2008 rolled around, allowing Americans the chance to have an alternative employment experience as they were getting laid off from corporate jobs. The people who make up this unique job marketplace are often referred to as “gig workers,” working on their own time as independent contractors. Fast forward to a little over a decade later, and 16% of Americans report using apps and online platforms to earn money. There’s no sign of the gig economy slowing down. In fact, it’s expected to continue to grow exponentially.

What Is the Gig Economy?

Although the term “gig” has traditionally been used within the musician community to refer to concerts or shows, the word is now associated with short-term and contracted work of all kinds. The gig economy is a marketplace made up of contractors and entrepreneurs with a focus on time-limited assignments, tasks, contracts, and project-based jobs. We can further understand the gig economy through its three main tracks: gig-specific apps, entrepreneurship, and online platforms and marketplaces.

Gig-specific apps

With the launch of apps like TaskRabbit and Uber around 2008, the gig economy was taken to a whole new level, allowing gig workers to access jobs directly from their smartphones. Food delivery, rideshares, everyday tasks, and hosting are only a few examples of gigs available through mobile apps. The ease of access and schedule flexibility are the most notable benefits of working gigs. If you want to earn more money, you simply do more gigs. Sometimes it’s not that easy, and, as an independent contractor, you’re responsible for securing your own health benefits. Also, Uber isn’t paying for the gas you use to deliver food and taxi around riders. You’ll be responsible for all expenses.

Entrepreneurial

Entrepreneurship has gained a lot of popularity over the years. The thought of being your own boss and not answering to a giant corporation appeals to many people. These small business owners, sole proprietors, and contractors offer services ranging from construction work to artistic projects. Entrepreneurs get to decide how their business is run, their client base, and what the daily operation looks like. This amount of freedom may sound desirable to most, but all of the burden and responsibility fall on the shoulders of the business owner. If you have employees, you have to decide how to manage them and what health benefits you’ll offer. When things go right or wrong in the business, it is ultimately the owner’s responsibility.

Platforms and marketplaces

Platforms like UpWork, Fiverr, and Flexjobs have grown in popularity over the last decade as freelance work has moved into the online space. According to a recent study by the Freelancers Union and UpWork, freelancers are predicted to make up more than 50% of the workforce by 2028. These platforms and marketplaces connect companies and individuals looking to hire specialists for project-based jobs, single tasks, and even part-time or full-time work. There is an abundance of jobs up for grabs, but these environments can be very competitive, especially for newcomers. Unfortunately, scams can make their way into these online platforms, so freelancers must do their due diligence and be sure they’re working with verified clients who will pay for their work.

Are You a Gig Worker or an Independent Contractor?

If you’re part of the gig economy, you must know which employment category you fall under for tax purposes. Even though the IRS views gig workers and independent contractors the same, there are differences between the two regarding the type of work they do. Yes, they are both self-employed and technically freelancers, but there are distinctions between them.

Gig worker

A gig worker uses apps and online platforms to find jobs or “gigs.” These are short-term tasks like delivering groceries, illustrating a book cover, or editing a manuscript. Workers are often paid a strict rate set by the app or work within a client’s set budget. The company or client sets the terms, and gig workers either accept the contract and get the job or move on to find another gig. The gig worker tends to have less agency over pay rate and work environment and usually doesn’t have the power to change the contract terms.

Independent contractor

From the government’s perspective, gig workers are considered independent contractors, but not all independent contractors are gig workers. Individuals with a trade background, unique skills, or extensive professional experience are contracted by companies or clients to complete projects. Like gig workers, independent contractors are usually hired for a set amount of time and create their own schedules. Electricians, plumbers, artists, writers, coaches, photographers, etc., can be independent contractors who create their own contract terms and decide on their pay range. They may even spend money on advertising and eventually hire employees.

Tax Forms for Gig Workers

If you fall under the umbrella of “self-employed” as an independent contractor or gig worker, you’ll be filing and receiving different tax forms than a traditional employee. Instead of receiving a Form W-2 at the end of the year, you can expect to receive a Form 1099. During tax season, you must also file a Schedule C (Form 1040). We’ll look at how these forms differ below and discuss additional forms to consider.

Form 1040-ES

There is no money withheld for taxes in the payments you receive from clients. So, if you’re self-employed,  consider filling out a Form 1040-ES to estimate the amount of tax you’ll be required to pay for the year. Most independent contractors pay their estimated taxes quarterly, while some opt to pay per transaction monthly. Payments are made every four months to avoid paying fines and interest, and any taxes owed or overpaid are settled at the end of the year.

Schedule C (Form 1040)

Self-employed individuals will file a Schedule C (Form 1040) to report the year’s earnings and expenses as a business, service provider, or statutory employee. You’ll disclose all gross income earned throughout the year and the consequent expenses such as gas, meals, supplies, rent, etc. Not all gig workers will be able to claim all of these expenses, but it’s good to know that you may be able to receive tax deductions on some.

Form 1099

As an independent contractor, if you were paid over $600 from any business or person who isn’t your employer, you’re likely to receive one or more Form 1099s. Any business or person who hired you for contracted work is required to report how much money they paid you each year. Although you’re not their employee, they must still disclose that information. You can expect to receive Form 1099s by January 31st each year for the preceding year’s income.

Form W-2

Because independent contractors do not fill out W-4s for employers, they will not receive any Form W-2s. However, if you are considered an independent contractor who is also a statutory employee, you will file a W-9 and receive a W-2 at the end of the year. These contractors are treated as employees for tax purposes and will enter into an agreement with an employer who will withhold tax for them. If you aren’t considered a statutory employee, you don’t need to worry about W-4s or W-2s.

Current Legislation Affecting Gig Workers

There are obvious benefits to working in the gig economy that we’ve already discussed. The freedom and flexibility offered to gig workers are impressive and worth the downsides to most contractors. As the world has seen a rise in freelance gig work, valid concerns regarding the work environment and livable wages have arisen. A few large platforms have made it a point to work around local laws and fly under the radar of regulation. A few states and cities have taken these concerns to heart and are working to protect gig workers in America.

California Assembly Bill 5

The California AB5 is a bill passed by the State of California to protect gig workers from being exploited and denied benefits only entitled to employees. Although this 2019 bill was met with resistance by gig platforms and workers alike, the burden of proof now lies on employers to determine whether or not a worker is an employee. In response to the bill being passed, Proposition 22 was created by large rideshare companies like Uber, DoorDash, and Lyft to reverse the effects of AB5 and keep workers as independent contractors. By August 2021, a state Superior Court judge ruled that Prop 22 was unconstitutional, striking down the efforts of these gig companies.

California Assembly Bill 286

California passed another bill to regulate third-party food delivery platforms across the state. However, it’s still awaiting the governor’s signature to be put into effect. The focus of AB286 is the protection of customers and drivers alike, advocating for a more transparent experience around cost and pay. The bill addresses three main concerns:

  • Purchase Price: Food delivery platforms can’t charge higher prices for food or beverage than what is posted by the food facility on the platform website.
  • Tips: Food delivery platforms can’t keep any amount of money designated as a tip or gratuity. They must pay it in full to the food delivery worker and/or food facility.
  • Cost Disclosure: Food delivery platforms must disclose to the food facility and customer an itemized cost breakdown of each transaction to include purchase prices, fees, commissions, and tips.

Minimum Payment Bill

To promote the protection of third-party and app-based food delivery workers, New York City enacted the “Minimum Payment Bill” (Int 2294-2021) in October 2021. This law requires the New York City Department of Consumer and Worker Protection (DCWP) to (at minimum) conduct a study on food delivery workers regarding:

  • The amounts and methods of payment
  • Total income earned
  • Expenses
  • Required equipment
  • Hours of operation
  • Average mileage per trip
  • Mode of transportation
  • Safety conditions

After the results are in (no later than January 1, 2023), the DCWP is required to create rules around establishing a “method for determining the minimum payments that must be made to a food delivery worker by a third-party food delivery service or third-party courier service.” The DCWP can then update the minimum payment requirement annually beginning February 1, 2024.

PayUp

In May of 2022, the City of Seattle, WA, passed the “PayUp” law, a policy authored by gig workers who want to work without having to “trade flexibility for basic protections.” This legislation is working to combat the alleged false promises and inequitable treatment people report from corporations like DoorDash and Instacart. Although this law doesn’t go into effect until 2023, take a look at the protections offered by the policy:

  • Pay Floor: Every app job must provide at least a Seattle-specific minimum wage plus accommodation for expenses like gas, car payments, and maintenance.
  • Flexibility: Gig workers have the right to reject and accept offers without penalty, to work when and for how long they choose, and to cancel jobs without penalty.
  • Transparency: Apps must disclose estimated time and mileage, location, exact guaranteed pay, any up-front tips, and a clear breakdown of pay within the paystub.
  • Advocacy: Future legislation to be recommended by a worker advisory committee.

Common Struggles of Gig Economy Workers

Working in the gig economy comes with its own set of unique struggles. An overwhelming amount of responsibility often counterbalances freedom.. It’s not all bad, but it helps to identify the challenges gig workers often face:

  • Unpredictable Salary: If you’re at the mercy of people placing delivery orders or clients requesting projects, it can be hard to determine how much money you’ll make each month. This can put a lot of pressure on gig workers, who may become stressed under the weight of finding enough work to make ends meet.
  • Lack of Career Path: There’s no obvious corporate ladder to climb in the gig economy. Remember, you’re your own boss! This can lead to a lack of direction and focus, especially working app-based gigs. There’s no promotion or raise to work toward unless you think of something yourself.
  • No Health Benefits: Perhaps one of the most frustrating aspects of the gig economy is finding affordable health insurance outside of traditional employment. Not everyone can rely on a spouse’s work benefits to cover the entire family. If you’re thinking about state insurance, you run the risk of making too much money to qualify or too little to live well.
  • Few or No Colleagues: While working alone may suit some, it can be hard to pursue a career without colleagues. It’s not always the case for independent contractors, but a lot of gig work is done solo. It can be an especially challenging shift if you come from a traditional career background where teamwork is often the focus.

If you find yourself struggling as a gig worker, it may be helpful to do a little self-reflecting. Ask yourself these questions if you need clarity on whether or not the gig economy is right for you or if you need to make a change:

  • Are you being compensated fairly for your time?
  • Can you handle working alone for long periods of time?
  • Do you manage your time well?
  • How much money do you need to average each month to feel secure?
  • If your workload slows down, do you have enough money set aside for expenses?
  • Do you have a backup plan?

Help during COVID-19

The COVID-19 pandemic has taken a toll on everyone in America, and gig workers are no exception. In 2020 grocery and food delivery apps were some of the fastest-growing smartphone applications, both showing a rise in use of 40% and 32%. Though this might mean that gig workers have seen an uptick in job availability, it also puts them at greater risk. They’re working in public places more frequently, are vulnerable to contracting the virus, and must deal with the stress that comes with fear of infection.

There are resources available to gig workers facing the challenges of working during the COVID-19 pandemic. Gig Workers Rising has put together a webpage full of resources and tips for gig workers on benefits, unemployment, financial assistance, and ways to stay safe during the pandemic.

Online Gig Worker Resources

Working as an independent contractor means you bear a lot of responsibility in your work life, but you don’t have to do everything alone. If you find yourself struggling with the issues mentioned above or just need a little help filing taxes, there is information available. Some gig workers have even formed groups and campaigns to bring app-based workers together to organize for better working conditions and wages. We’ve compiled a list of resources to help you succeed in the gig economy.

Gig Economy Tax Center

Thinking about taxes as an independent contractor might give you goosebumps–it’s a little intimidating. There are forms and calculations galore. Thankfully, the IRS has put together a ton of information on all you need to know about paying and filing taxes as a self-employed individual. Under the Small Business and Self-Employed section of the IRS website is the Gig Economy Tax Center. This resource page is full of great info about taxes and self-employment, including how to prepare for a successful filing at the end of the year. Learn about keeping records, deducting expenses, paying quarterly, and filing forms.

LegalZoom

Another daunting aspect of self-employment is the legality of it all. There are common sense laws and rules we’ve been taught over the years, but things can get complicated quickly when it comes to contracts and legal disputes. Whether you’re preparing to sign a contract offered to you by a company or drafting up your own, it’s important to know what to include or exclude to protect yourself and your career best. As a sole proprietor, did you know you are personally liable for things that may go wrong at work? LegalZoom is all about making the law accessible to everyone. Check out their webpage on sole proprietorship to learn more about liability, taxes, licenses, and general legal advice.

Freelancers Union

Based out of New York City, Freelancers Union is an organization providing information on insurance benefits, advocacy, and education to gig workers in select states across the nation. Though technically not a trade union, the organization’s name conveys its message of uniting to create stability and community for independent contractors. Learn about legislation and ongoing research influencing the state of the American gig economy at the Freelancers Union website. You’ll also find the latest on meetups, workshops, and events online and in your area.

FlexJobs

If you want to look outside app-specific gigs, it might be time to head to the job board. FlexJobs is a website that connects people with remote, flexible, and hybrid work opportunities. Using its advanced job search, you can select “freelance” or “temporary” under the “Job Types” tab to filter your search results for work as an independent contractor. Jobseekers can find options locally and remotely using the FlexJobs search engine. Then, head over to the blog for the latest information on making the most of your resume and how to have a successful interview.

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