Gig Workers Are Overpaying on Tax Day

Workers for Uber, TaskRabbit, and Handy overpaid by 21 percent because of lost deductions.

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Apr 15 2019, 3:55pm

Image: Matt Madd

Jean Michel knows he procrastinated on his taxes this year, but on the Friday before tax day, he was relaxed. “I’m doing them today,” the 34-year-old said, patting his vest pocket. “Deadline’s Monday—we’re good.”

In Michel’s pocket was a 1099 form from Uber. Michel quit his full-time job to drive for the company in New York City last year and made “good money,” he told me. But the hours were grueling—he often worked nearly 22 hours straight on weekends. “Plus, you gotta put in your own gas, your own EZPass.”

I told him he could write off expenses like those as deductions to lower his overall tax rate. I’ve filed 1099s for freelance work for the past few years, and know how little deductions like work lunches and phone bills can add up. His eyebrows shot above his sunglasses. “Really? I didn’t know. They didn’t tell me that.”

By some estimates, one-third of Americans are involved in the gig economy, as millions of workers like Michel leave full-time jobs to hustle for companies like Uber, Fiverr, Amazon Turk and Doordash. Companies classify these workers as independent contractors, meaning that the IRS treats them as, essentially, small businesses.

This confusion can have serious financial consequences for drivers like Michel. A new whitepaper compiled by the startup Keeper Tax shows that gig workers often don’t count the everyday costs of their work-—from miles traveled to phone bill costs to supplies—when filing their taxes, overpaying an average of 21 percent nationally in lost deductions. That’s around $1,550 for a worker making $25,000 a year.

“A lot of [gig economy] workers don’t see themselves as self-employed,” said Rebecca Smith of the National Employment Law Project. “They are maybe reporting their income from a side hustle as wages, so they’re not taking deductions.”

Keeper Tax, a Y Combinator startup, says its goal is to help independent workers keep better tabs on work expenses, and has an obvious vested interest in making people care about their deductions. But in the data-poor sharing economy—where even basic information, like the amount of money Uber takes from a standard fare, is often a matter of guesswork from outside parties—Keeper’s research sheds valuable light on how workers handle their taxes.

For a proof-of-concept study, cofounders Paul Koullick and David Kang recruited more than 200 gig economy workers from the top 16 US cities and metro areas. The workers, who were paid $30 for their participation, did their own 2018 taxes and turned them over before filing to Keeper, who then re-prepared the taxes using a slew of commonly-missed deductions, normalizing the results against national IRS data from 2016 (the earliest year available).

One surprising finding: it can be expensive to work for Handy or TaskRabbit. Workers on these platforms left the most money on the table in lost deductions—more than $750 on average. For these workers—whom Koullick and Kang said skewed younger, with many still in college—the costs of supplies, equipment, and travel added up quickly.

Koullick recalled how one TaskRabbit worker made $80 one day helping a couple move, but traveled to and from their house in an Uber. “Half of his salary was going to Ubers!” Koullick exclaimed. (In a statement, TaskRabbit says it “offer[s] several perks to help Taskers stay on top of their finances and taxes,” including a discount on TurboTax.)

Those Uber drivers ferrying TaskRabbiters to jobs may also be forgetting some details in their taxes. Many drivers know to track miles during rides, but Kang and Koullick said that drivers often forget to count miles spent driving between passengers—an important deduction.

Then there’s the goodies. Using push notifications, emails, and remedial customer service classes, Uber encourages drivers to offer complimentary mints, snacks, or water bottles to snag high ratings from passengers. Small purchases like these “are the easiest ones to miss,” Kang said. “You think you're buying a $4 pack of gum, but you're doing it constantly—it adds up."

This learning curve for new 1099 workers could, of course, be much gentler if special interests—chief among them tax filing giants H&R Block and Intuit—didn’t lobby to keep filing taxes a complicated process. And the existence of a paid app like Keeper Tax depends on a system that allows large companies to skirt the responsibility of paying for car and health insurance, Social Security, and payroll taxes for millions of workers.

Uber’s IPO, released last Thursday, acknowledges the profit it has made off this arrangement. Various ongoing investigations over worker classification could eventually require the company to reclassify drivers as employees, the IPO explains. The move “would incur significant additional expense,” the IPO states, requiring Uber “to fundamentally change [its] business model, and consequently have an adverse effect on [the company’s] business and financial condition.”

Smith pointed out the premise of Keeper Tax itself proves that there needs to be a wholesale change in the way companies like Uber do business. “On some level, [lost deductions] show that workers really aren’t independent businesspeople,” she said. “These workers get a contract, they go to work, and come tax day there’s a lot of confusion and a lot of lost money as a result.”

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