Taxing the Gig Economy

Abstract

Due to advances in technology like mobile applications and online platforms, millions of American workers now earn income through “gig” work, which allows them the flexibility to set their own hours and choose which jobs to take. To the surprise of many gig workers, the tax law considers them to be “business owners,” which subjects them to onerous recordkeeping and filing requirements, along with the obligation to pay quarterly estimated taxes. This Article proposes two reforms that would drastically reduce compliance burdens for this new generation of business owners, while simultaneously enhancing the government’s ability to collect tax revenue. First, Congress should create a “non-employee withholding” regime that would allow online platform companies such as Uber to withhold taxes for their workers without being classified as employers. Second, the Article proposes a “standard business deduction” for gig workers, which would eliminate the need to track and report business expenses. Although this Article focuses on the gig economy as an illustration of how the workplace has evolved in recent years, the proposals could apply more broadly to taxation of small, individually run businesses. In an era when the use of cash is on the decline and information can be shared rapidly and at little cost, it is time for policymakers to institute a more modern tax enforcement regime for small businesses.

Keywords: Tax, taxation, gig economy, sharing economy, 1099 economy, on-demand economy, tax policy, tax enforcement, tax administration

JEL Classification: E62, H20, H21,H22, H24, H25, H26, H29, H30, K34, A12, K42, K34, O33, O35, O38, J38, J30