Forget the IRS — independent contractors also have to pay taxes to the city of San Francisco
April 15th just passed and you hopefully finished paying the IRS. But, if you’re an independent contractor in San Francisco your taxes to the city are due next on May 31st.
This is separate from the money you pay to the IRS, or the State of California. Confused? You’re not alone. All the independent contractors I talk to have never heard of it. Some people don’t even understand what I’m talking about — it’s complicated.
Amanda Kahn Fried knows all about it though. “I work on policy and communications for the Treasurer in San Francisco”
She says that while this is technically a tax, San Francisco calls it a Business Registration. And if you go to the city’s website it’s pretty clear. If you are an independent contractor and if you work in San Francisco for at least 7 days out of the year — you legally have to pay. Whether that’s office work, or catering, or being a freelance journalist.
Fried breaks it down for a person who might have picked up small gigs off an app. “For the regular person who is wondering: ‘I signed up on this platform and I hung a flat screen,’ my question back would be: ‘Did you do that for 7 days or more?’ And if you did, congratulations, you’re a business. And now you owe the city a tax.”
Congratulations indeed. And this applies if the work you did took place in San Francisco. It doesn’t matter if you live here or not. But don’t worry most other cities have this tax too. If you work in Oakland or San Jose you have to pay up there.
Fried admits, “you know that's news to many people.” But the city isn’t required to let anybody know that they have to pay their taxes
This tax adds to a list of disadvantages that independent contractors have that normal employees don’t. Things like labor protections, overtime pay, workers’ compensation and unemployment insurance.
So now that you know about the tax, you’re probably are wondering how much you have to pay. In San Francisco, if you make under in $100,000 a year, you owe $91 dollars. Earn more, and it goes up depending on how much you make.
The city has tried to make it easy to pay online. Fried walks me through a mock application, and I soon get emailed a registration.
“Once you sign it,” she explains, “you are officially a business, which is very exciting. And your first order of business, as a welcome package, is a bill which we will email you within the hour.”
How exciting. But, there’s a catch. If you’ve been a contractor for years and haven’t paid and the city finds out — you owe back taxes. And there can be stiff penalties that add up quickly. Let's say you started as an independent contractor three years ago and you’re just now registering with the city - you would owe over eight hundred dollars. The longer it’s been, the more you owe.
“Late penalties are there for a reason,” says Fried. “If there's no penalty, then why be timely in the first place? This is the law.”
You are legally required to pay your taxes. Not knowing about them isn’t an excuse to the IRS, and it isn’t an excuse to the Treasurer of San Francisco.
How many people aren’t paying the tax? It’s hard to pinpoint, because if the city knew about them it would make they pay up. But right now there are 73,265 independent contractors registered in San Francisco. They bring in around seven million dollars a year and that all goes to the city’s general fund.
To get the word out, Amanda Kahn Fried says they’re considering an advertising campaign. But more proactively, they can (in some cases) get information from large companies that operate in San Francisco. For example: in 2016 they sent letters to 37,000 Uber and Lyft drivers that they suspected were working in the city and told them to pay up. This is a hot topic. In the past 6 years the number of independent contractors in San Francisco has increased by about 60%. A lot of that is because of people working in the gig economy. There is a new California state Supreme Court ruling that might reclassify many independent contractors who work in the gig economy as employees. This big shift in the labor market is leading to many legal battles.
All of this made me want to ask Amanda Kahn Fried if she had ever been an independent contractor herself. “No, I never have.” she tells me. “My husband was a freelance journalist for some time back in the day. I am quite certain he did not register. I understand he was a hot mess, he was 25, he didn't know. And that's who we need a better job reaching out. He absolutely would have filed and paid would he have known. He’s a good example.”