By Simone Liao and Elizabeth Guner
Richard Prisinzano, senior economist at PWBM, and Christine Speidel of Villanova University’s Federal Tax Clinic, discussed personal taxes, focusing on gig economy workers, on Knowledge@Wharton Business Radio Sirius XM 132 on April 12, 2019. Gig economy workers, like those at Uber, Airbnb, and Grubhub, are considered self-employed by the IRS and are held responsible to record and pay their taxes, leading to potential hurdles for those workers.
Gig economy workers are different from workers with employers. For workers with employers, taxes are withheld paycheck by paycheck. For gig economy workers, taxes are not automatically withheld throughout the year, so the final tax bill may come as a surprise.
To avoid a tax day surprise, Prisinzano and Speidel emphasized the importance of carefully recording income and deductions. Even though it can be difficult to project one’s yearly income in such a profession, Speidel suggested that these workers should use the estimated tax forms and save 20 percent for future tax payments to be on the safe side. She further recommended that gig economy workers carefully track their income through apps or similar recording devices. Prisinzano added that self-employed workers should keep a business bank account that accrues 10 to 12 percent in savings set aside specifically for taxes.
Another important reason to keep good records is to track expenses for potential deductions. For example, an IT-based gig worker who uses a personal computer should be able to deduct computer expenses in their taxes. Prisinzano and Speidel suggested that saving or filing quarterly more than legally required can help solve the angst because a refund can be requested later.
Most workers should be able to personally determine their tax liability by using apps and tax accounting software. However, if a gig economy worker has doubts about tax filing, especially in some complicated cases (e.g., potentially with Airbnb), Prisinzano and Speidel broadly recommended that these individuals see a tax professional. Accurately filing taxes is important--this year, the IRS has allocated more money towards audits, so there is a higher possibility that tax filings will checked.