Income-Tax Reporting In The Freelance Economy

By Kathleen Pender
San Francisco Chronicle.

Uber and Lyft say their drivers are independent contractors, not employees. But when it comes to income-tax reporting, they are treated as neither.

Traditional employers send employees, and the Internal Revenue Service, Form W-2, which shows their wages, deductions and other information.

Freelancers and independent contractors typically get Form 1099-MISC (for miscellaneous income) from any person or company that paid them more than $600 the past year.

But people who earn money through Uber, Lyft, Airbnb, Task Rabbit and a number of other companies in the sharing economy often get neither form. If they get anything, it’s usually Form 1099-K, a relatively new and confusing document used mainly to report credit and debit card payments and online transactions.

Peter Ashlock, who drives for UberX in San Francisco, was stunned to receive Form 1099-K showing he had received $68,997 in gross credit card payments last year. “That is about $11,000 more than the payments received in my checking account,” he said.

Ashlock also made about $8,400 in “gross ride earnings” driving for Lyft last year, but he got no 1099-K for those earnings.

The reason: Uber sends a 1099-K to any driver who makes at least one trip. Lyft sends them only to drivers who make at least 200 trips and generate at least $20,000 in fares per year.

When Ashlock went onto Lyft’s online help center to learn more about this policy, the first thing he saw was a quote attributed to Albert Einstein: “The hardest thing in the world to understand is the income tax.”

If Einstein couldn’t understand the tax system, it’s easy to see why entrepreneurs in the on-demand economy are befuddled. Many are self-employed for the first time and unaware of the need to keep careful records and make estimated tax payments four times a year.

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