Independent Contractors May Feel the Impact of Recent Tax Reforms

Impact of Recent Tax Reforms on independent contractors

Independent contractors come in a wide range of shapes and forms, from your favorite cab driver to the person who brings your food order.

However, the last couple of years saw an increase in a different type of independent worker – the freelancer or the gig worker (as some like to call them). 

All these people have one thing in common: they are one-person businesses that can have multiple customers and must pay their own taxes.

Even though there are (many) situations where independent contractors work in collaboration with companies, they don’t have employee status. 

Therefore, they don’t get the same benefits and can’t rely on an employer to withhold their share of taxes from their salary. 

While many people enjoy their freelance status, there are situations where workers are misclassified as contractors. 

Also, as more people take the path of freelancing (especially after the crisis ensued by the Covid-19 pandemic), the authorities are now rethinking the status of independent contractors and the type of taxes they’d have to pay. 

Here are a few examples of changes that may have an impact on your business and the impact of the tax reforms on independent contractors

Payment Apps Will be Reporting to the IRS

Individuals who sell goods online and collect their payments through apps like Venmo, PayPal, CashApp, Etsy, or other similar third-party payment processors will now receive a 1099-K Payment Card and Third-Party Network Transactions Form if the payments exceed $600/year.

Also, those payments will be reported to the IRS as income. 

The new law has been active since January 1st, 2022, and seems designed to reach gig workers and independent contractors who have a side hustle.

That’s because, before this, you wouldn’t have to send an IRS Form 1099-K unless your gross payments were over $20,000 or you had over 200 transactions per year.

As you can imagine, the tech industry and independent contractors are not happy about this change.

The tech companies are not happy because the government is placing a huge burden on their plate (due to privacy concerns), while the contractors feel the measure is unjustified. 

However, regardless of your feelings, as long as the law is in effect, you need to follow it. So, if you’re not sure how to proceed, you can get an estimate of your tax payments by using an online tool.

Gig Workers vs. Employees

Another issue discussed these days is whether some gig workers should have employment status. This comes after people working for companies such as Lyft, Uber, or DoorDash required more rights and better protections for the type of job they do.

However, if the law passes and companies offering ride-sharing or delivery services will have to hire their collaborators, things will change in terms of pricing as well.

Right now, the predictions show a 30% increase in prices for on-demand transportation, which can mean many customers will give up using these services. 

For now, there isn’t a clear path to follow, and the Department of Labor is looking into solutions. However, if things move forward, the ride-sharing industry may see significant changes.

At the moment, the DOL is fighting to give drivers minimal rights and benefits, but once this door is opened, it may sweep the entire industry away. 

Overall, things are about to change for some of the gig workers and the companies using their services.

So it’s a good idea to be more responsible with your money and make sure you are prepared for a period of instability.

Wrap Up

As more people look towards the gig economy to make a living, so do the government and the IRS in order to reform the taxation system and include the new type of businesses in the loop. So, things are about to change in this area as well.

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