The Gig Economy Breaks Social Security

With the tax deadline looming in the US and the future of the gig economy as the engine of scaling startup workforces under fire, there's an important point to consider: In the gig economy the entire social contract is kaput. Here's why.

Everyone who works in the US pays into the Social Security system. The whole idea of Social Security is young people pay in and old people take out.

When you are an employee Social Security taxes are taken directly out of your paycheck. You don't even have to think about it.

When you work in the gig economy you get a 1099-MISC at the end of the year. A 1099 reports payments made by the hiring company during the year and it's sent by the hiring company both to the worker and the IRS.

It's up to the worker to identify their income on their tax return as self employment income, which is subject to a Social Security tax of 15.3%. Most gig workers probably won't declare this income because a lot of them don't even know they are supposed to. My wife, Linda Coleman, a respected Enrolled Agent, says from people she has talked to a lot of gig workers haven't even heard self employment tax. And there's only an ever decreasing budget for the IRS to try to enforce all the rules.

And even if a gig worker does know about the tax they might ask themselves why should should I pay 15.3% on my income when I'm making so little money and the company is capturing almost all the benefit?

The problem: if gig workers aren't contributing how is Social Security supposed to work? Gig workers simply won't have Social Security when they retire.

The way Social Security works is all your wages and self employment income are tracked by the Social Security Administration. If you aren't contributing then you aren't earning credits towards your account. And if you aren't earning credits you won't get much in the way of benefits. Social Security works like a big checking account. The amount you can take out is based on how much you put in (or close enough). If you aren't putting any money you can't take it out later.

The whole big picture is not being communicated well to the public. Who is benefiting? It's not the worker. It's not the government. It's not even the shareholders because no dividends are being paid.

In the gig economy the entire social contract is kaput.