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October 16, 2019

Taxes in a Growing Gig Economy World

  • The gig economy revolves around people connecting over the Internet to share or provide goods or services; it is growing and so is its impact on the economy and all levels of government.
  • Gig economy workers are well educated (50% have a college degree) and most work full-time and through an actual company (e.g., Uber) rather than being self-employed.
  • Gig economy goods and services are not regulated and taxed the same as similarly provided goods and services raising issues of fairness and equity, as well as lost revenue streams and tax evasion; governments are beginning to respond to these emerging markets, which will hopefully lead to fairer standards and better compliance.

The gig economy (also referred to as the sharing economy) encompasses the new economy that has exploded in recent years around the sharing of goods and services. It can include mobility services (ridesharing, car-sharing), short-term rentals, and freelance and contract workers, among others. The basic model is that strangers connect through a website or online application that is facilitated by a third-party business to share goods or services. The Bureau of Labor Statistics (BLS) has recently defined gig workers as those that perform electronically mediated work — that is, those that find work through, and are paid by, technology platforms.

The 2007-2009 economic recession played a part in the inception of the gig economy; however, technology and the Internet are responsible for its present-day success. This new way of working and providing services represents a major economic shift and an issue for governments as it was estimated in 2017 that the gig economy was already worth $100 billion and growing.

Gig economy workers

We are just now starting to collect data on the gig economy and its workers. USAFacts — a nonpartisan, nonprofit, data-driven organization committed to providing facts and data on government — compiled some of the data collected through the 2017 BLS Contingent Worker Study. This data is all we have right now, but it is limited because the survey asked respondents whether they earned money through gig platforms in the last week; this one-week snapshot of gig economy workers likely understates the total number of gig workers.

Gig economy workers are

  • Less likely than the average worker to be under 25 or over 55 (71% of gig workers are between 25 and 54 compared to 64% of total workforce)
  • More likely to be men (54% men compared to 46% women)
  • 75% white, 17% black, and 16% Hispanic
  • More likely to have a bachelor’s degree (50% of gig workers compared to 35% of the general population over 25)

Nature of gig economy work

BLS 2017 data report that 1.6 million people (1% of U.S. workforce) reported working gig jobs:

  • 72% working full-time (35+ hours per week) 
  • 63% working as employees of a company rather than being self-employed
  • 62% performing their work in-person (Uber or Lyft drivers) rather than online (Task Rabbit or platforms to connect workers to web research or creative jobs)

A broader definition of the gig economy could encompass even more workers. In 2015, the Government Accountability Office estimated that people in non-traditional work arrangements could account for up to one-third of the total workforce.

The effect of the gig economy on state and local governments

The truth is that the effect of gig workers on the economy and state and local governments is unknown. This is partly because the nascent gig economy is fluid with a moving definition that can include new types of jobs and workers as the economy and nature of work changes; it is partly due to the fact that government and taxes take time to catch up with a changing economy.

A 2019 Treasury report estimates that $69 billion in taxes goes uncollected from gig work (which would work out to an extra 4% in individual income tax revenue for the federal government). Gig economy services such as ridesharing and short-term rentals are not taxed or regulated at the state and local level the same as similar services provided by taxi companies and hotels, which raises issues related to fairness and equity as well as uncollected tax revenue streams.

One impediment to taxing these gig economy goods and services is that governments can be faced with collecting small amounts of tax revenue from large numbers of taxpayers, making it administratively difficult. Furthermore, gig economy jobs can require people and businesses to start paying and collecting taxes that they have never before dealt with, leading to administrative difficulties on both ends. That being said, states and local governments are starting to respond to these emerging markets.

The Citizens Research Council issued a report on local-option taxes in 2018 that detailed local taxes in Michigan compared to other states, including taxes on the gig economy. State and local governments in Michigan do not currently collect gig economy-specific taxes (taxes, for example, on ridesharing like the one percent tax on all ridesharing revenue collected in South Carolina or the 60 cent fee per ride collected in Chicago). Airbnb does collect the state’s 6% use tax that is collected on hotels, as well as some county hotel taxes. Michigan lawmakers have not, like some states, enacted or proposed legislation to preempt state and local taxes on gig economy services like ridesharing or home-sharing.

Michigan ties its definition of income to federal definitions for tax purposes, so it should collect taxes from homeowners that rent their home for more than 14 days a year; the biggest issue with this tax, however, is compliance and tax evasion.

The effects of the gig economy — on workers, customers, taxpayers, and governments — is likely to increase as this economy continues to grow. With growth will hopefully come clearer rules, regulations, and tax policy related to gig economy goods and services, as well as better understanding and compliance.

Research Associate

About The Author

Jill Roof

Research Associate

Taxes in a Growing Gig Economy World

  • The gig economy revolves around people connecting over the Internet to share or provide goods or services; it is growing and so is its impact on the economy and all levels of government.
  • Gig economy workers are well educated (50% have a college degree) and most work full-time and through an actual company (e.g., Uber) rather than being self-employed.
  • Gig economy goods and services are not regulated and taxed the same as similarly provided goods and services raising issues of fairness and equity, as well as lost revenue streams and tax evasion; governments are beginning to respond to these emerging markets, which will hopefully lead to fairer standards and better compliance.

The gig economy (also referred to as the sharing economy) encompasses the new economy that has exploded in recent years around the sharing of goods and services. It can include mobility services (ridesharing, car-sharing), short-term rentals, and freelance and contract workers, among others. The basic model is that strangers connect through a website or online application that is facilitated by a third-party business to share goods or services. The Bureau of Labor Statistics (BLS) has recently defined gig workers as those that perform electronically mediated work — that is, those that find work through, and are paid by, technology platforms.

The 2007-2009 economic recession played a part in the inception of the gig economy; however, technology and the Internet are responsible for its present-day success. This new way of working and providing services represents a major economic shift and an issue for governments as it was estimated in 2017 that the gig economy was already worth $100 billion and growing.

Gig economy workers

We are just now starting to collect data on the gig economy and its workers. USAFacts — a nonpartisan, nonprofit, data-driven organization committed to providing facts and data on government — compiled some of the data collected through the 2017 BLS Contingent Worker Study. This data is all we have right now, but it is limited because the survey asked respondents whether they earned money through gig platforms in the last week; this one-week snapshot of gig economy workers likely understates the total number of gig workers.

Gig economy workers are

  • Less likely than the average worker to be under 25 or over 55 (71% of gig workers are between 25 and 54 compared to 64% of total workforce)
  • More likely to be men (54% men compared to 46% women)
  • 75% white, 17% black, and 16% Hispanic
  • More likely to have a bachelor’s degree (50% of gig workers compared to 35% of the general population over 25)

Nature of gig economy work

BLS 2017 data report that 1.6 million people (1% of U.S. workforce) reported working gig jobs:

  • 72% working full-time (35+ hours per week) 
  • 63% working as employees of a company rather than being self-employed
  • 62% performing their work in-person (Uber or Lyft drivers) rather than online (Task Rabbit or platforms to connect workers to web research or creative jobs)

A broader definition of the gig economy could encompass even more workers. In 2015, the Government Accountability Office estimated that people in non-traditional work arrangements could account for up to one-third of the total workforce.

The effect of the gig economy on state and local governments

The truth is that the effect of gig workers on the economy and state and local governments is unknown. This is partly because the nascent gig economy is fluid with a moving definition that can include new types of jobs and workers as the economy and nature of work changes; it is partly due to the fact that government and taxes take time to catch up with a changing economy.

A 2019 Treasury report estimates that $69 billion in taxes goes uncollected from gig work (which would work out to an extra 4% in individual income tax revenue for the federal government). Gig economy services such as ridesharing and short-term rentals are not taxed or regulated at the state and local level the same as similar services provided by taxi companies and hotels, which raises issues related to fairness and equity as well as uncollected tax revenue streams.

One impediment to taxing these gig economy goods and services is that governments can be faced with collecting small amounts of tax revenue from large numbers of taxpayers, making it administratively difficult. Furthermore, gig economy jobs can require people and businesses to start paying and collecting taxes that they have never before dealt with, leading to administrative difficulties on both ends. That being said, states and local governments are starting to respond to these emerging markets.

The Citizens Research Council issued a report on local-option taxes in 2018 that detailed local taxes in Michigan compared to other states, including taxes on the gig economy. State and local governments in Michigan do not currently collect gig economy-specific taxes (taxes, for example, on ridesharing like the one percent tax on all ridesharing revenue collected in South Carolina or the 60 cent fee per ride collected in Chicago). Airbnb does collect the state’s 6% use tax that is collected on hotels, as well as some county hotel taxes. Michigan lawmakers have not, like some states, enacted or proposed legislation to preempt state and local taxes on gig economy services like ridesharing or home-sharing.

Michigan ties its definition of income to federal definitions for tax purposes, so it should collect taxes from homeowners that rent their home for more than 14 days a year; the biggest issue with this tax, however, is compliance and tax evasion.

The effects of the gig economy — on workers, customers, taxpayers, and governments — is likely to increase as this economy continues to grow. With growth will hopefully come clearer rules, regulations, and tax policy related to gig economy goods and services, as well as better understanding and compliance.

Research Associate

About The Author

Jill Roof

Research Associate

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