Gig workers face unique challenges paying taxes, new Prudential poll finds

This week is crunch time for those who have yet to file their taxes, and though most of us look forward to the annual accounting dance about as much as we look forward to a root canal, America’s 15.5 million independent workers find it even more stressful and complicated than the rest of us.

That’s because independent—or “gig”—workers are responsible for calculating and withholding the proper amount of taxes from their paychecks on their own since they don’t have an employer with a payroll department to do it for them like traditional workers do.

“Tax planning is stressful for many Americans, but for gig workers it can be more daunting. Most of them are planning year-round because instead of having taxes automatically withheld, like traditional workers, they typically have to send in tax payments four times a year,” said Jake Biscoglio, vice president of strategic growth initiatives at Prudential Financial.

A 2019 poll of 1,648 Americans who are filing 2018 federal income taxes commissioned by Prudential and conducted online by The Harris Poll found that gig workers were more likely to owe taxes and were more financially stressed than traditional workers. Of note:

• Only 39% of gig-only^[1] workers who owe 2018 federal taxes were able to pay their tax bill with no impact to their overall finances, while 50% of traditional^[2] workers who owe 2018 federal taxes were able to pay their tax bill with no impact to their overall finances.
• Only 48% of gig-only workers and 40% of gig-plus workers^[3] filing 2018 federal taxes reported that they weren’t stressed about 2018 federal tax planning and filing, while 64% of traditional workers filing 2018 federal taxes said they weren’t stressed about 2018 federal tax planning and filing.
• Less than half of gig-only workers filing 2018 federal taxes are receiving a refund (47%), while 66% of traditional workers filing 2018 federal taxes are getting one.
• While only 18% of traditional workers filing 2018 federal taxes owed this year, 30% of gig-only workers owed.

Surprisingly, traditional workers who have a full-time job with an employer but do gig work on the side reported being more stressed than either gig-only workers or traditional employees. Of those surveyed, 26% of so-called gig-plus workers reported being stressed about their 2018 federal tax planning and filing because their income and expenses were unpredictable. Just 9% of gig-only workers and 10% of traditional workers reported being stressed because of these factors.

Additionally, 30% of gig-plus workers said trying to reconcile their multiple sources of income was stressing them out compared with just 8% of gig-only workers and 6% of traditional workers.

Further, gig-plus workers said they planned to take specific actions in 2019 to alleviate the stress they are feeling over their 2018 taxes. For example, more than a quarter (27%) said they planned to increase their work hours to increase their income. Just 7% of gig-only and 14% of traditional workers said they would do the same. Also, 21% of gig-plus workers plan to do more gig work to increase their earnings in 2019 compared with just 11% of gig workers and 10% of traditional workers who plan to do the same.

“Our survey findings help illustrate some of the unique pain points gig workers face with tax planning. I’d argue that those challenges should be part of a much larger conversation about gig workers’ lack of access to automated savings and benefits, how it affects their financial wellness, and how the industry can innovate to replicate the benefits experience traditional workers have. Solving these challenges is a key area of focus for Prudential,” Biscoglio said.

These survey findings build upon Prudential’s earlier research to understand the attitudes and financial behaviors of gig workers.

Earlier this year, Prudential started developing tools and initiatives designed to help replicate some of the benefits traditional workers have, including Covered1099, a web-based tool that enables independent workers to automate the process of tax withholding, saving for paid time off or time between gigs, and purchase of insurance products.