Self-Employed Gen-Z Mostly Ignorant About Quarterly Tax Reporting Requirements, Survey Finds

A sign marks a rendezvous location for Lyft and Uber users at San Diego State University in San Diego, Calif., May 13, 2020. (Mike Blake/Reuters, File Photo)

The majority of Gen-Z self-employed individuals, including freelancers and gig workers, are unaware of their obligation to pay taxes on a quarterly basis, with many feeling anxious about taxes and getting information about the topic from social media, according to a November survey.

The survey was conducted among 1,000 Americans between the age of 18 and 24 by Lili, a banking app targeting freelancers. It found that 90 percent of self-employed individuals had no idea they had to pay quarterly taxes, As such, Gen Z freelancers could be at risk of receiving penalties, Lili said in a blog post on Nov. 21, 2022. Failure to make quarterly tax payments can attract a 0.5 percent penalty on unpaid dues for each month the amount remains unpaid.

Ninety percent of respondents admitted to feeling anxious when hearing the word “taxes.” Almost 30 percent of survey respondents said that no one explained to them about tax calculations.

While 40 percent were educated by parents about tax preparation, 15 percent learned it from their teachers. “None of this is from a lack of desire on the part of Gen Zers. Eighty-three percent believe they would save more money if they understood how taxes were calculated,” the post said.

“Although 84 percent would prefer to turn to a person in their life (a parent, friend, significant other, or financial advisor), our research shows that Gen Z is getting most of their financial advice from TikTok, Youtube, and Instagram.”

Additional Tax Burden

The Lili survey comes as self-employed individuals were set to be subject to a new tax reporting rule starting this year.

The requirement was the result of the American Rescue Plan of 2021, which changed the reporting threshold for third-party settlement organizations (TSPOs) like Venmo and Paypal. It requires every transaction with a value of more than $600 made via TSPOs to be reported to the IRS via Form 1099-K.

Earlier, only those who made over 200 third-party network transactions, with the total value of such transactions being at least $20,000, were required to make such reporting.

According to the Coalition for 1099-K Fairness, the new reporting rule would result in unnecessary burdens for people who do casual selling online as a side hustle.

A survey conducted by the organization found that most of these sellers made less than $5,000 in gross revenues in 2021, while 89 percent said that this was not their primary source of income.

The reporting requirement was introduced even though the IRS was said to have a backlog of 21.3 million unprocessed tax returns at the end of May 2022.

Some experts estimated the new rule to result in up to 20 million 1099-Ks being issued this year. In December, the IRS announced that it was delaying the new reporting rule by a period of one year.

Doing Side Hustles

The ignorance about tax rules and new tax reporting regulations might be a challenge for the numerous Americans who increasingly do freelance work or side gigs for extra income.

According to a McKinsey survey from August, 58 million Americans, making up 36 percent of employed respondents, identified as independent workers. In 2016, only 27 percent of the employed population had identified as being part of the independent workforce.

A survey from last year by small-business insurance marketplace Insuranks found that 93 percent of respondents had an added job or side hustle together with their primary job. Fifty percent of those who did such extra work were women, with men making up 49 percent.

For 18 percent of respondents, selling items online was the most common side hustle, with 9 percent selling used clothing. Thirteen percent took up freelance jobs as side work.

The biggest reason for taking up a side hustle was said to be “for something to do and a bit of extra cash,” with 63 percent agreeing to the statement. Forty-four percent wanted to make ends meet while 28 percent were doing side hustles owing to decades-high inflation pushing up living costs.