As if retirement weren't under enough threat, thanks to defined contribution plans that don't provide the security and income that defined benefit plans did and an economy that's rich on “on-demand” jobs and poor on longer-term full employment with benefits, now there's a new obstacle to workers' eventual retirement—the gig economy.

According to a working paper from the Center for Retirement Research at Boston College, “it is known that self-employed workers have tax compliance and reporting issues” when it came to regulations on self-employment tax contributions.

Now, however, with the rise of the gig economy, “the existing reporting rules applicable to most workers earning income in the on-demand economy substantially increase the likelihood that these taxpayers are failing to contribute to Social Security and Medicare through payment of the self-employment tax.”

An analysis of 2014 data from the U.S. Census Bureau's redesigned Survey of Income and Program Participation, the report says, allowed comparison of the likelihood of underpayment of the SE tax at that time to the likely underpayment of the SE tax to data published in 2018 by the U.S. Bureau of Labor Statistics on the number of independent contractors and on-platform workers in 2017.”

SIPP data also allowed supplemental demographic data on independent contractors and the on-demand platform workforce.

The 2014 data indicated that independent contractors earned approximately $204.1 billion in income in that year, while on-demand workers earned approximately $36.0 billion.

Researchers estimate that at least 3.1 million independent contractors underreported self-employment income in 2014.

This underreporting would result in approximately $4.8 billion in SE tax that should have been paid, with approximately $3.9 billion constituting non-payment of Social Security contributions.

And for on-demand workers in 2014, the estimates are $2.5 billion in SE tax that was not reported or underreported, translating to $2.0 billion that was not paid into Social Security.

The report also found that independent contractors were likely boomers (age 55 and older), more likely women than men, and more often white than another ethnicity, while on-demand workers were more often GenXers (ages 35–54), more likely women and most frequently white.

This magnitude of noncompliance threatens Social Security, say researchers, writing, “The on-demand economy has grown substantially since 2014 and added millions of workers in the last four years, who may not have been captured by our SIPP data. In addition, our estimates for underpayment of SE tax of independent contractors are based on averages of underpayment of SE tax and do not account for the likely nonpayment of tax by this population altogether.” (Many in the gig economy do not realize they are obligated to pay quarterly estimated taxes, the report adds.)

Modernized information reporting and additional tax guidance, among other steps, need to be put in place by lawmakers, says the report, “to help address these issues and further support the solvency of Social Security.”