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September 6, 2021

What Are the Top Tax Challenges 1099 Workers Face?


This post is part of an on-going series that explores in-depth the state of taxes in the independent economy. To read the full report based on our survey of over 1000 1099 workers, click here.


Taxes aren't typically something people look forward to. If you're one of the 68 million workers who make up the growing independent economy, you may be particularly dreading tax time.

That's because for independent workers, they haven’t had their taxes withheld throughout the year, and simply input numbers from a W-2. Independent workers are responsible themselves for figuring out how much they owe. They must do the math on their expenses, income, and deductions, pay estimated quarterly taxes throughout the year, and hope they budgeted enough to cover what they owe.

It's a pain point like this that make tax time especially daunting for independent workers — and we found out just how daunting in our "State of Taxes in the Independent Economy" report. As it turns out, there are plenty of challenges surrounding tax time.


The Tax Challenges of 1099 Workers

For independent workers filing taxes for the first time, they faced a few big challenges, including:.

#1: Not having kept track of deductions: They’re worried they didn’t track business expenses or write-offs.

#2: Not knowing what qualifies as a deduction: They’re unsure of what they can actually write off.

#3: Unsure of the process for freelancers: They’re confused about the entire process of doing taxes themselves.

#3: Worried about the penalty for not paying estimated taxes correctly: They’re worried they didn’t pay enough and will then have to pay more.

#5: Not having kept track of earnings: They’re concerned that they didn’t track each invoice, app payout, online sale, or other income.

#6: Unsure if they paid estimated taxes correctly: They don’t know if they did the process correctly.



Each of these is a challenge that W-2 workers don't need to worry about. They don't need to track deductions, they don't need to pay estimated taxes or worry about paying a penalty if they don't pay enough, they don't need to keep track of their earnings, and they don't need to educate themselves on a new process because the tax system is created for them. W-2 workers have their taxes and withholdings withdrawn from their paycheck through the year, and payments to Federal and State done for them.

But that's not how it is for independent workers, who are tasked with figuring out their calculations, and setting aside money from each paid invoice or app payout — and don't incur a penalty for underpayment.

Often, there's little guidance on how to submit quarterly tax payments as an independent worker, and there's no infrastructure in place to make tax compliance easier, either.

This means that there's a need to be filled in the space. It can be solved by businesses who work with and serve independent workers.


The Business Opportunity of Solving Your 1099 Users’ Tax Challenges

Businesses that serve independent workers have a massive opportunity right now to fix this pain point and add value to their users.

That opportunity is simple: offer users tax withholdings, calculations, and payments right in the app or platform, at the point of payout.

Not only would it help ease a burden for independent workers, it can be a value add that draws new users to the platform, increases retention of those users, and can even create new revenue streams.

Businesses are already providing these options to independent workers, which means that if organizations don't take this step, they'll lose their workers to other platforms.

Founders who see this opportunity will have the ability to make tax time a much less daunting season for independent workers, and help grow the future of the independent economy.

Authors

Trent Bigelow
CEO, Abound
Alex Cram
CTO

Ready to build the future independent workers want to work in?