How Gig Economies Can Stay Ahead of Tax Season

Key Takeaways

• Automation reduces gig economy tax season stress by streamlining contractor onboarding and tax reporting.
• Centralized contractor data ensures seamless access and compliance with IRS 1099 requirements.
• Minimize IRS penalties by automating accounts payable processes and avoiding common tax season errors.
• Stay ahead in the growing gig economy with scalable automation solutions for global contractors.

 

Over half of America’s workforce has participated in the gig economy, a testament to its growing dominance in today’s job market. As businesses increasingly rely on independent workers, the stakes are high when it comes to steer through the tax season. Well planned strategies, with solutions like accounts payable automation, are essential to manage contractors and ensure compliance with IRS regulations.

 

How the IRS Classifies Independent Workers

The IRS classifies independent workers differently from traditional employees based on these three main factors:

• Behavioral Control

This considers whether the company controls or has the right to control what the worker does and how the worker does their job.

• Financial Control

This looks at whether the business aspects of the worker’s job are controlled by the payer, such as how the worker is paid, whether expenses are reimbursed, and who provides tools and supplies.

• Type of Relationship

This examines the nature of the relationship, including whether there are written contracts or employee-type benefits (e.g., pension plans, insurance, vacation pay), the permanency of the relationship, and whether the work performed is a key aspect of the business.

 

The IRS and Independent Workers

• Key IRS Forms

Businesses must issue a 1099-NEC form to any contract worker paid more than $600 in a tax year. Additionally, platforms facilitating payments through payment cards or third-party network transactions may need to file 1099-K forms for those transactions.

• IRS Penalties

Failing to send these forms on time can result in penalties ranging from $50 to $270 per form.

Handling these requirements accurately is critical, especially with the growing complexity of tax season as independent workers increase.

 

How the IRS Classifies Independent Workers

The IRS classifies independent workers based on three main factors:

• Behavioral Control

This considers whether the company controls or has the right to control what the worker does and how the worker does their job.

• Financial Control

This looks at whether the business aspects of the worker’s job are controlled by the payer, such as how the worker is paid, whether expenses are reimbursed, and who provides tools and supplies.

• Type of Relationship

This examines the nature of the relationship, including whether there are written contracts or employee-type benefits (e.g., pension plans, insurance, vacation pay), the permanency of the relationship, and whether the work performed is a key aspect of the business.

 

Challenges with Tax Collection and Paperwork

Many gig economy businesses struggle with managing contractor data effectively.

Common challenges include:

• Incomplete Information: Businesses often neglect to collect crucial details like mailing addresses and EINs during the onboarding process.
• Last-Minute Confusion: Collecting contractor information during tax season can lead to delays and errors.
• Manual Processes: Relying on manual methods to manage accounts payable and tax forms reduces efficiency and increases the likelihood of making mistakes.

These challenges not only disrupt operations but can also lead to financial penalties and strained contractor relationships.

 

Challenges	Impact
Incomplete contractor data	Delayed tax filings and penalties
Manual processes	Higher error rates and inefficiencies
Lack of centralized information	Time-consuming data retrieval

 

The Benefits of Automating Contractor Onboarding

To address these challenges, businesses are increasingly turning to automating contractor onboarding for tax season and tax preparation. Here’s how automation can make a difference:

• Streamlined Data Collection: Automating contractor onboarding ensures essential information is collected upfront, reducing last-minute hassles.
• Centralized Information: Automation tools store all contractor data in one easily accessible location, improving efficiency.
• Error Reduction: Automated systems minimize the risk of human error, ensuring compliance with IRS 1099 requirements for contract workers.
• Scalability: As gig economy businesses grow, automation simplifies the onboarding of additional contractors without overburdening administrative teams.

 

How Accounts Payable Automation Helps

Automation extends beyond onboarding to streamline accounts payable processes. Here are some specific benefits:

• Easy Data Import

With Accounts payable automation software’s like Zenwork Payments have easy data import option with your existing accounting software. Reducing your discrepancies and saving time during tax season.

• Ease of Access

Automation platforms provide teams with instant access to necessary information. This eliminates communication gaps and simplifies collaboration during critical period.

• International Contractor Management

For businesses working with global contractors, compliance with international tax laws can be daunting. Automation simplifies onboarding and accounts payable for international contractors, ensuring smooth operations and compliance across borders.

 

Why Automate Now?

These statistics speak for themselves. According to recent surveys:

• 98% of businesses believe that accounts payable automation enhances the speed of managing payables.
• 67% of companies processing at least 2,500 monthly payables consider automation essential for growth.

• By 2025, the global gig economy market is expected to surpass $455 Looking further ahead, it is anticipated to reach $1,847 billion by 2032, with a compound annual growth rate (CAGR) of 16.18% during the forecast period.

For gig economy, these numbers highlight the pressing need to adopt automation tools to remain competitive and compliant.

 

FAQs

• How can gig economy businesses prepare for tax season?

Gig economy businesses can prepare for tax season by automating contractor onboarding, centralizing data, and ensuring compliance with IRS 1099 requirements.

• What IRS forms are critical for gig economy tax season?

Key forms include the 1099-NEC for contractors earning over $600 and the 1099-K for payment card and network transactions.

• Why is automation crucial for gig economy tax compliance?

Automation simplifies contractor onboarding, reduces errors, and ensures compliance with IRS regulations during the gig economy tax season.

• How does accounts payable automation help gig economy businesses?

Accounts payable automation centralizes data, reduces discrepancies, and improves efficiency during tax season, especially for growing gig economy businesses.

• What are the benefits of automating contractor onboarding?

Automation ensures accurate data collection, minimizes errors, and supports compliance, streamlining the gig economy tax season process.

 

Conclusion

Tax season doesn’t have to be a stressful period for gig economy businesses. By automating contractor onboarding for tax season and adopting accounts payable automation, businesses can simplify operations, reduce errors, and stay compliant with IRS 1099 requirements for contract workers. Zenwork Payments provide the support needed to manage these tasks efficiently, ensuring your businesses remain ahead of tax season challenges.