How To Make Gig Workers Feel Smarter About Taxes

Most of us, upon spotting a $10 bill on the ground, would pick it up and pocket it, assuming we were sure we were not stealing that money. It’s pretty much a no-brainer — free money is good. But as Keeper Tax Co-Founder and CEO Paul Koullick tells it, that same mentality breaks down when it comes to gig workers and taxes — too often, those workers are intimated by the multi-layer complexity of gaining all their write-offs, deductions and refunds from the Internal Revenue Service (IRS), a situation that basically leaves money on the table (or, of course, the ground).

Karen Webster recently caught up with Koullick for the latest edition of the PYMNTS Matchmakers podcast series. Keeper Tax focuses on solving one of the common problems in the expanding gig economy — making sure those workers, who are almost always independent contractors, have the digital assistance necessary to do their taxes in a way that not only prevents them from paying too much to tax agencies, but saves them from paying too little and facing the penalties and other hassles of making that mistake.

Gig Economy Growth

In general, as the gig economy keeps growing, he said, workers who take part it in are “severely unprepared for the responsibility as independent contractors, and are therefore often overpaying. According to Keeper Tax, in fact, the average gig worker in the U.S. is overpaying their taxes by more than 20 percent, or about $1,550 for those making more than $25,000 per year.

The rise of such bank-end, payment-related services for gig workers comes as the gig economy continues to expand, as confirmed by PYMNTS research. For instance, the most recent Gig Economy Index found U.S. gig workers accounting for more than $1.4 trillion in income by the end of 2018 — underscoring how the gig economy is becoming a mainstream part of the global economy. As well, from ridesharing drivers to freelance designers and consultants, an increasing share of gig workers are pursuing specialized jobs, often juggling multiple gigs at once. In fact, the share of those in the gig economy with highly specialized skills rose to 32.3 percent in Q4 2018 — a 12.2 percent increase over the previous quarter.

That creates an increasing need for proper guidance on taxes. Gig workers are expected to handle their own withdrawals and receipts, and can face penalties of up to 9 percent if they underpay, and a significant loss of their hard-earned income if they overpay. When talking with Webster, Koullick recalled the pain of his own time as a freelance worker, when he had to “had to give away a third of this money” in service of taxes, and “felt the sinking feeling that I had overpaid.”

Now that experience helps guide his work with Keeper Tax. “It’s a really tough spot to be in as a gig worker,” he said. “You don’t necessarily realize all that’s required” to avoid mistakes on taxes, “and you can’t afford to hire an accountant.” Not only that, but so many Keeper Tax clients — who include both full-time and part-time gig workers — are, he said, new to the gig economy, and that tends to mean they are even less knowledgeable about the tax situations of that type of work — including what qualifies as a legal deduction.

Keeper Proposition

That’s where digital technology comes in.

The business doesn’t do tax filings, Koullick said, though it does provide help with quarterly tax statements to the IRS, and could one day offer full annual filing services. Keeper Tax links to customer debit or credit card accounts but doesn’t sell its users’ data, he told Webster during the Matchmakers podcast. Those links enable Keeper Tax to “monitor purchases (by gig workers) throughout the year and send texts about potential deductions.

Keeper Tax software — paid for via a subscription cost model that charges uses a percentage of what the company saves them on their taxes — identifies those likely deductions, and sends daily, weekly and monthly updates about those potential points of tax savings. For instance, a gig worker might get a text message saying that $4 of the $12 ride to work, or a portion of the business lunch, qualifies for a deduction. “We take care of all the categorizations,” he said.

The company also employs a certified accountant to identify potential red flags from users that the IRS would likely notice at tax-filing time, in hopes of preventing problems down the road. The company also audits those regular updating statements its sends to users, Koullick said. “If you are making $30,000 a year, and you have $8,000 in meals written off, that suspicious,” he said.

The digital technology as play is, in general, designed to give gig workers more confidence about their earnings from gig work. “People love feeling smarter about taxes,” he said.

As the gig economy continues to grow, and more full-time and part-time gig workers take part in that sector, you can be sure that taxes will take on increasing importance — and that feeling smart about them will be a vital part of this labor experience.