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On-Demand Workers: The Benefits of W-2s vs. 1099s

Apr 6th 2016
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If you’re following the on-demand economy, it’s almost impossible to avoid all of the press around the workers being paid as either a 1099 or a W-2. Every single day there’s a new article about how workers in ridesharing companies and delivery companies might be wrongly classified as 1099s when they should, in fact, be full- or part-time W-2 employees. What can on-demand startups do to help on-demand workers?

But is this where the entire on-demand industry is headed? In a few years’ time, will we see all on-demand services be staffed with W-2 employees? Do all of the workers in the on-demand industry feel this way? Do they all want to be W-2s?

There has been a lot of discussion and back and forth on the merits of being a W-2 employee versus a 1099 contractor. Before the on-demand economy, if you decided to become a 1099 contractor, you typically did some research, maybe set up a business, got a business account, and had extensive tracking on all of your expenses.

However, since the launch of the on-demand economy, with people being thrust into 1099 contractor status in just a few days over the phone, a lot of tax benefits are, unfortunately, being overlooked.

At, we meet dozens of workers in our office each month who work for various on-demands. Many of them drive for the various rideshare services. While they know they can write off gasoline, tires, and insurance, many of them are not using their 1099 status to its fullest potential.

I recently sat down with Derek Davis of Shared Economy CPA. His accounting firm does what it sounds like – it specializes in on-demand workers. Here are three tax deductions he noticed that his on-demand drivers/clients almost never take into account.

1. “Dead miles.” These are the miles you put on your car in between passengers. The problem is that the rideshare platforms keep track only of the miles you drive while you have a passenger in your car. They don’t keep track of these dead miles for you, so this is something that drivers should be tracking, as well. It could be a pen-and-paper process where you write down your mileage at the start and end of your day, then subtract the miles that Uber has tracked for you when you had passengers in your car. Or you can do the smart thing and download one of the various apps that track this for you!

2. Cellphone use. You’re using your cellphone for business while you are working. You can estimate how much of your cellphone time is used for personal use outside of work and for business, and then deduct whatever percentage you are using for business off of your taxes. That’s a significant monthly expense.

3. Commission fees. The last and the most important tip that Davis likes to give is concerning the commission fee. The 1099 that you get from Uber or Lyft is the gross amount paid out – the full amount that they paid you. What most people don’t know is that drivers can deduct the 3 percent commission fee they charge you.

Being a 1099 worker is essentially owning your own business. If you’re going to own your own business, you should certainly take advantage of any tax deductions that are available to you. Be sure to sit down with an accountant who understands your industry to make sure you’re not paying more in taxes than you should, and that way, more of your hard-earned money will stay in your pocket, where it belongs!

If you just read the press, you’d think this industry is all about greedy Internet companies screwing people out of W-2 benefits. But when you stop to ask the workers, you find that they’re not getting into this industry to work a 9-to-5 full-time job. They are in this for the flexibility and quality of life. They go to school three mornings a week and do deliveries in the afternoons, take pictures at weddings on the weekend, and translate websites into French on Sunday night from home while watching Game of Thrones.

Be sure to keep that in mind as a startup. Be fair to the workers, and make sure you give them the flexibility they are looking for while still making enough money so they stay with your platform. It’s cheaper to keep your existing workforce than to constantly onboard new workers.

Related articles:

Grow Your Tax Practice by Helping 1099 Clients
A New Twist on the Worker Classification Debate
Why the IRS Wants Uber Drivers Classified as Employees
Special for Freelancers: Essential Tax Rules for 1099 Workers

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