How Do Taxes Work In The Gig Economy?

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As we know the gig economy provides many jobs to freelancing Americans, however, rarely do we think about how taxes are paid to the government from these freelancing jobs. We know that Uber drivers make money from driving passengers and that AirBNB hosts get paid for hosting guests at their houses. Hosts and drivers get paid through an app which is created by a company who takes payments from customers. But who pays the taxes? The answer is actually everyone. Both the “employee” and the “employer” pay taxes.

According to techcrunch.com “Taxes are a growing gap between gig economy workers and traditional employees. W-2 workers are automatically part of the government withholding program that automates their tax savings so they are not left owing sizable annual sums. Many 1099ers want this option too. In a 2016 survey, 47 percent of 1099 workers said they want a way to save a little money from every paycheck for taxes”. From this quote we can understand that gig economy workers have to calculate their taxes by themselves and pay for everything themselves rather than having a small portion of their paycheck have the tax money already taken out. This is a big hassle because if the wrong amount of money is calculated for the taxes then one can get into trouble with the IRS which can cause even greater problems in the future.

Also, other than the employees, the employers also have to pay taxes to the government. Even though Uber hires freelancers for work it stills has to pay income tax. According to the Washington Post “As an independent contractor, in addition to your income tax, you’re responsible for paying taxes that your employer would otherwise pay for you, namely Social Security and Medicare taxes that you owe under the Self-Employment Contributions Act, or SECA. Because you’re self-employed you’ll be able to deduct half of the Social Security and Medicare tax”. From this quote one can understand that Uber only pays for their income and nothing to do with their “employees” which is a big headache and a risk that Uber drivers have to take.