The growth of the gig economy is a big change-maker for lots of businesses across all industries.
Why is Gig Work Growing?
The gig economy is taking off for several reasons. Brodmin has an insightful case study about gig work. Though COVID-19 spurred a big wave of workers into the gig economy, favor with the freelance and independent contractor style of work has been growing for a number of years.
The pros: flexible schedule, the ability to control your workload, extra income outside your traditional. All of these things align with the work-life balance and benefits that Millennials and Gen Z are looking for in their “dream job” scenarios.
Some industries are growing their gig worker base because of new trends. Things like Uber and Airbnb have seen record growth recently, and that trajectory will continue in the coming years.
Technology is Leading the Way
Other growth areas in the gig economy are being led by technology. Web and graphic design, programming, and IT are at the top of the list of fields experiencing prominent growth in the number of freelancers and independent contractors making up the workforce.
Also, with the rise in company use of collaboration tools and other remote-friendly technology, gig work has become more accessible. Computer work can be done from anywhere, and more people are taking advantage of that.
What Gig Work Means for Your Taxes
Gig economy growth means that your business will be more likely to interface with freelancers and independent contractors on a regular basis. Because gig workers aren’t classified as employees, the taxes associated with your business also differ.
According to JustWorks.com, more than 3 million employees are misclassified as 1099 contractors every year. You can only classify the people you hire as gig workers if:
- They control when and how they do their work
- They use their own supplies and equipment to carry out the job
- They get paid directly by varying clients
If the person you hired fits these criteria, you will need to request a form W-9 from the worker and then file a 1099 (typically a 1099-NEC).
Penalties of Misclassifying Workers
Often, workers are misclassified as independent contractors, and that mistake can be a costly one. For every form W-2 not filed, employers are subject to a $50 fine plus a penalty of up to 3% of the wages and up to 40% of the FICA taxes that were not withheld from the employee, as well as up to 100% of the matching FICA taxes the employer would have paid if the employee was correctly classified. Find out more about 1099 filing penalties here.
Gig Economy Means More 1099 Filing – Why Not Make It Easier?
As the gig economy grows, your business needs next-level solutions for your tax prep. eFile360 supports 1099, 1098, W-2, and ACA forms. Whether you need mail, e-filing, combined Federal and State filing, corrections, TIN check, or e-delivery, we can help you.
As part of our service, we electronically file your 1099, 1098, and ACA forms with the IRS and W-2 forms with the SSA. As a payee, you can submit paper forms with the IRS. But filing on paper is both time-consuming and tedious. Filing 1099 forms electronically is much more convenient. We make the filing process easy. All you need to do is sign up with us, enter or upload your information, and we do the rest. We e-file the forms with the IRS in bulk.
The use of freelancers and independent contractors is on the rise. Do you have the tax forms you need? Sign up for a free eFile360 account.