A new California law that would likely reclassify many workers as employees instead of independent contractors could provide relief for gig economy workers struggling to document and report their income because of confusing California tax rules.
Most gig workers, because they aren’t employees, don’t receive tax documents such as the 1099-K for payment card and third-party network transactions, panelists told the three-member California Franchise Tax Board during a special meeting about the gig economy and tax compliance Oct. 1.
Without that document, workers aren’t sure if they have to include the income on a tax return, or if the government will know they earned it, FTB Taxpayer Advocate Susan Maples told the board.
A new California law taking effect Jan. 1, 2020 may shift more workers to employee status, triggering W-2s from their employers and simplifying the rules, Maples and others said. That law will presume workers are employees unless an employer can show it doesn’t have control of the worker, the worker’s duties are outside the employer’s normal business, and the worker isn’t in an independently established role.
California could help workers who remain as independent contractors—and boost tax collections—by setting a lower income threshold for companies like Lyft Inc. and Task Rabbit to report wages to the state, some panelists said.
California could follow the lead of Massachusetts and Vermont and set the 1099-K threshold at $600 in annual earnings, which is the same as the threshold for the 1099-Misc, Annette Nellen, professor and director of the graduate tax program at San Jose State University, told the board. The federal threshold for 1099-K reporting is $20,000 in earnings and 200 transactions.
“If the federal government wants to forego that income there is no reason for California to,” Nellen said.
Annette Rivero, a driver for Lyft and Uber Inc., told the board she gets summary information with no details about her earnings from those platforms, and the platforms make it difficult to verify basic information such as mileage. A 1099-K would be helpful, she said.
“If an auditor comes to me and asks me how I came up with all these numbers I have no answer,” Rivero said. She is part of an organization called Gig Workers Rising, which advocates for better wages and working conditions.
Postmates helps funnel its drivers’ activity data into an application that tracks mileage and expenses, and more companies may move toward something similar, Vikrum D. Aiyer, vice president of public policy and strategic communications, told the board. The company makes suggestions about tax compliance, but can’t prescribe steps workers should take.
California officials can take the lead on helping with reporting income and withholding taxes for gig workers, Joseph Bankman, professor of law and business at Stanford University, told the board.
“The average Lyft driver might have a more complicated tax return than the average Lyft vice president,” Bankman said. “That’s insane.”
State Controller Betty T. Yee, a Democrat who chairs the FTB, said the board may be able to make changes on its own, or may need the legislature to help. But the tax agency is still trying to figure out how many gig workers exist, how to reach out to them, and how different companies approach pay and reporting.
“It’s not a one-size-fits-all,” she said. “But with respect to tax compliance it’s the worker that’s bearing the burden.”
The agency is studying the issue together with the University of California Berkeley Labor Center and has not set a timetable for taking any action.