Press Release
New Report Reveals California Gig Workers Lose Time, Money, and Millions in Tax Credits to a Broken Tax Filing System
08. 27. 2025
Study from ESCA underscores need to modernize tax filing as CA's independent contractors face costly, complex tax challenges with limited support.
SAN FRANCISCO—Nearly one in five California workers relies on independent contractor earnings, yet they face a tax filing system that costs independent contractors a national average of $620 and 24 hours to complete – about four times more expensive and three times longer than traditional employees – according to a new report released today by Economic Security California. The study exposes significant gaps in tax filing support for California’s gig economy workforce and proposes concrete solutions to modernize the system.
Workers are turning to gig work to make ends meet, yet the impact of the trend – and how much they earn – is unequal. In 2016, 20% of Californians earned some income from independent contracting; however, their earnings amounted to only 3% of the total compensation paid in the state. Further, the report found that workers relying solely on gig income are twice as likely to be low-income compared to traditional employees. Given that these workers do not receive the benefits packages, nor the ease in tax filing of traditional workers, these trends present significant challenges for creating durable, stable incomes that can support families.
While platform work like rideshare driving and food delivery garners significant media attention, these workers account for just 1.4% of California’s workforce. However, nearly 20% of the state’s workers fall under the umbrella of independent contracting, whether as freelancers, consultants, or small business owners, highlighting a much larger population struggling with complex tax obligations.
“When we talk about the state’s gig workers, we’re talking about hundreds of thousands of hardworking Californians from delivery drivers to hairstylists and handymen, who are currently tasked with navigating a complicated and expensive tax filing system with basically zero support,” said Teri Olle, Director of Economic Security California. “These workers are missing out on millions in tax credits on the table at a time when the price of groceries, housing, and healthcare all continue to rise. This isn’t tenable for these families or for California’s economy.”
The report, authored by Jean Ross, the former head of California Budget and Policy Center, documents serious gaps in tax knowledge and compliance among gig workers:
- Two-thirds of platform workers receive no documentation (1099 forms) of their earnings for tax purposes
- One-third are unaware they must pay self-employment taxes and make quarterly estimated payments
- Nearly half don’t know they can deduct business expenses like gas and vehicle maintenance
- 43% of platform workers who receive 1099 forms fail to file required Schedule C or Schedule SE reporting self-employment income
These gaps in compliance or tax knowledge underscore the way the tax filing system is broken. The end result is significant loss of revenue, with business income underreporting accounting for 28% of the total “tax gap”—the difference between taxes owed and taxes actually paid.
Modernizing tax filing for independent contractors would benefit California’s economy. When gig workers underreport income, they not only face potential penalties, but also miss out on valuable tax credits like the Earned Income Tax Credit and Child Tax Credit. These tax credits were designed to support working families, many of whom make a living with various forms of gig work, with a larger tax refund they can spend how they choose. Additionally, underreporting can result in lower Social Security benefits upon retirement.
The lack of free filing options results in a particularly large burden for California’s gig workers. Their tax situations are too complex for most free filing assistance programs, forcing them to use expensive private tax preparation services.
The report outlines policy solutions:
Federal:
- Restore IRS Direct File* and expand it to include many independent contractor returns
- Require better income reporting from payment platforms and apps
- Implement minimum tax withholding—as we already do with W2 workers—to prevent surprise tax bills
- Create free, public online tools for expense tracking and tax estimation
California:
- Align the state’s CalFile system with any expanded, restored federal Direct File tool*
- Improve data sharing between federal and state tax authorities
* The Trump Administration ended Direct File; yet, as reported by FedScoop, a committed group of advocates led by Economic Security Project are continuing to push for the future of free, simplified filing for all Americans, including gig workers.