Failure to Contribute: The Consequences of Non- and Under-payment of Self-employment Taxes by Freelancers, Independent Contractors, and On-demand Workers on Social Security

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by Caroline Bruckner, American University

This project will focus on estimating the impact of non-payment of self-employment taxes by on-demand platform workers, freelancers, and independent contractors – an ever growing portion of the self-employed in America.  This project will specifically focus on the impact of failure to remit Social Security contributions through self-employment taxes and the impact on these individuals’ estimated Social Security benefit.

In order to achieve these goals, this project will first seek to estimate the number of on-demand app-based, freelance, independent contractors, and self-employed individuals using the U.S. Census Bureau’s redesigned Survey of Income and Program Participation (SIPP).  Second, it will estimate how much income these individuals earn from these on-demand app-based, freelance, independent contractors, and self-employed positions and calculate the amount of income taxes that should be paid on this income.  Third, using information gained from on-demand platforms and the Internal Revenue Service about issuance of Form 1099-K or Form 1099-MISC in 2014, this project will approximate the amount of self-employment taxes that should have been paid on this income and calculate the approximate Social Security underpayment amount.  Fourth, utilizing SIPP, this project will examine the total individual incomes of these individuals and their other employment relationships during the 2014 tax year; and fifth, estimate the impact of failing to report self-employed income in an estimate of anticipated Social Security benefits, using a sample of self-employed individuals.  Finally, this project will summarize the results and make policy recommendations to help improve these processes.

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