The Biden Administration's War On 'Gig Work'
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As our economy continues to digitize and innovate, new working arrangements outside the traditional employer-employee relationship have proliferated. Americans who value the flexibility of setting their own schedules have gravitated towards the gig economy, either as a main job or a side hustle to earn some extra money. Unfortunately, though, few things can smother a revolutionary new industry in the cradle as easily as a poorly-conceived regulatory response, as the Biden administration is demonstrating.

The latest blow against freelancers is a draft rule by the Biden administration that seeks to reclassify many gig economy independent contractors as employees. Unfortunately, it could do so at the cost of the flexibility that many gig economy workers value.

Workers usually fall into one of two categories. Traditional employees receive added benefits and stricter labor law protections, but have their hours and workflow managed by their employer. Independent contractors, on the other hand, enter into a contract with the business they work for to provide a service, but have flexibility in how they do so. On the other hand, they are not eligible for the same benefits and labor law protections.

Advocates of shifting gig economy workers into the “employee” category often frame it as a matter of protecting exploited workers, but the reality is just the opposite. The flexibility to set one’s own schedule is often the main draw of gig work, but gig companies cannot afford to offer healthcare and retirement benefits to “employees” unless they work as such — 40 hours a week, with their schedules set by corporate managers. 

Taking a new approach to work tailor-made for the millennial generation and shoving it into outdated boxes is hardly an innovative approach to regulatory oversight. Such bullheaded inflexibility has consequences — one study estimated that a similar California law would eliminate 80-90 percent of gig economy work opportunities in the state. 

Rather than arguing over which employment model better describes gig economy workers, regulators should acknowledge that it is a new model that deserves a new classification. A third employment classification could offer gig economy workers the ability to receive benefits such as tax withholding and compensation for gas mileage for rideshare drivers while still preserving their ability to set their own hours and schedules.

But that’s not the only way that the Biden administration is hurting the gig economy. A little-publicized change in the American Rescue Plan Act of 2021 (ARPA) changed requirements for gig workers’ tax filings.

Form 1099-K exists to ensure that non-wage income through peer-to-peer payments was still reported to the IRS. But many peer-to-peer payments are non-taxable, such as personal household items sold in “virtual garage sales.” 

To avoid unnecessary paperwork over non-taxable transactions the IRS did not need to know about, prior to ARPA, this form only had to be issued by web platforms that facilitate peer-to-peer payments to taxpayers with more than 200 transactions and $20,000 in income. Fears of unreported gig economy workers’ income, however, led lawmakers in ARPA to lower this threshold to just $600.

Consequently, millions of Americans will likely receive a Form 1099-K from at least one of the online platforms they sold items or services on. Taxpayers receiving this form for the first time may not realize that the information reported on the form does not necessarily constitute taxable income. At best, this is an unnecessary hassle for taxpayers and the IRS only for the IRS to learn about transactions that were never taxable in the first place. But at worst, confused taxpayers may report non-taxable transactions reported on the form as taxable income.

Not only is this foolish and wasteful for taxpayers and an IRS that is already incapable of handling the volume of paperwork it receives, but it also unfairly punishes taxpayers participating in the gig economy with unnecessary IRS scrutiny. As continued IRS leaks of taxpayer data show, the less financial information the IRS gets from taxpayers, the better off they are.

A new sector of the economy requires more from legislators and regulators than just cut-and-pasting the same approach they used in years past. Americans have benefits a great deal already from the gig economy — President Biden must be careful not to take those benefits away through incautious and unnecessary regulation.

Andrew Wilford is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government. 


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