Wednesday, January 21, 2009

How are your plumber and the Treasury Secretary nominee alike?


In the
Daily Beast, Tina Brown tells us we are in the Age of Gigonomics and that the “gig economy is no picnic.”

The economy is changing. So much so that it affects people even in the corridors of power. And because it affects them, it’s news.

The most stunning revelation to come out of the hearings on the Timothy Geithner nomination for Treasury Secretary is that nobody who is anybody understands self-employment tax. The columnists, pundits, and reporters – they’re all in the dark. Even Rep. Barney Frank, speaking on MSNBC, when referring to the self-employment tax, added, “whatever that is.” And he’s chairman of the House Finance Committee, which deals with financial matters like taxes. And even Mr. Geithner’s three accountants – whom we expect are members of the Masters of the Universe -- didn’t quite understand it. Wow. This is news!

Well, not really. It might be news that all these high-placed people have fuzzy math when it comes to self-employment tax but freelancers know that they have always struggled with it as a component in the rules and regulations of being self-employed.

Who are freelancers? Freelancer is just another way of saying self-employed, 1099 person, sub-contractor, independent professional, indie, solo. In IRS talk they are “independent contractors.” And they have always had a more difficult time in the American economy than have employees.What’s an employee? Somebody who earns wages, a salary, or has take-home pay, who usually gets benefits like vacation pay or child care benefits or a pension contributed to by the company.

Part-time or fulltime does not determine your work status. A part-timer is not a self-employed. A self-employed can work a 60 hour week.

Artist are indies. So, too, are most psychologists and plumbers and tech consultants. The guys who work for Blackwater are indies. Most politicians upon leaving office for the talk circuit get paid as independents. Your landscaper and handyman are freelancers.

Most artists, for example, work on gigs as a matter of course. Often they work on multiple levels, dividing their time between commercial art and serious endeavor – such as musicians who play good-time Dixieland one night a week and innovative jazz on another night.

We respect artists in America – at least some of us do – but we don’t worry about the precarious state of their economic survival. It’s only when the same predicament hits the mainstream economy, as it is doing at present, that it becomes a perceived problem and a big story.

In her post, Tina conflates freelancers with part-time workers. They’re different. As corporations find it to their advantage to downsize by kicking employees out the front door and inviting them back in through the rear door as associates or consultants the long-standing muddle about self-employment and part-time work is growing more confused.

Most accountants who sit in mahogany offices – I personify the type in my book,
Self-employed Tax Solutions, as Sammy Segar, CPA – are clueless about the freelance life. The tax laws are written for the corporate world, and they are trained solely in the tax structure of the corporate world. When they see an honorarium for a speech they treat it as “Other Income” rather than as “Earned Income.” And you know what? On earned income you must pay Social Security and Medicare taxes. If you’re an indie – same tax, different name. It’s called self-employment tax.

This apparently eluded the tax preparer who worked on Treasury Secretary-designate Timothy Geithner’s tax returns, and thus put his appointment to the Obama cabinet at risk. The state of the new economy means the accountants have to get out of their mahogany offices and into the present economy to see what self-employeds have been dealing with their entire indie lives.

Self-employed people get screwed not only by the accountants and the tax laws, but also by the banks, the mortgage brokers and all the other monotone gray elements of the corporate W-2 side of our economy. So maybe the grim economic forces that are creating a gig economy will at last help that unorganized and unorganizable mass of freelancers. Because so many people are scrambling into the same boat with freelancers, an opportunity has opened up for a New Deal for the Indies.

June Walker

2 comments:

Victor said...

I agree with you, June. My company decided to switch me to 1099 status, even though I have an indefinite contract with a stipulated monthly income regardless of hours and projects. But every mortgage company is telling me that because of my 1099 status, I must wait A YEAR before I can get a mortgage, so that they can see my expenses in a tax return.

WHAT BS! There are plenty of full-timers in this economy who have been laid off. And yet they could get a mortgage up until the day they were terminated. This whole situation has me so angry!

June Walker said...

Victor, don't be angry be smart.

If what you say is the whole story, then the company for which you work is breaking federal employment regs by paying you as a self-employed. You are an employee.

I don't know enough about your situation to know whether making waves would cause you to lose the work but you should make some inquiries.

Also, talk with a mortgage broker -- one who is up on the changes since this economic fiasco and see if she can point you in the right direction.


In case you are not familiar with mortgage brokers -- they find lenders for you after reviewing your situation. Realtors know mortgage brokers. You might ask some for recommendations.

-- June