OBSERVATIONS FROM THE FINTECH SNARK TANK
Got a side hustle or do gig work? If not, you might be in the minority pretty soon.
According to a survey from Bankrate, more than a third of American adults—including roughly half of Gen Zers and Millennials—now have a side hustle. Some make big money from it: On average, a side hustle brings in nearly $10,700 a year.
The most popular side hustles? Furniture assembly, data analytics, and pet sitting. More than a third of side hustlers use the cash just to pay regular bills, and about a third say they’ll always need a side gig to make ends meet.
In addition to side hustles, TeamStage estimates that more than 57 million Americans have a gig work arrangement either as their primary or secondary job. This includes a quarter of all full-time workers and half of all part-time workers.
It may all sound like easy money, but side hustlers and gig workers might not be aware that there are tax implications regarding their income. According to the IRS:
“You must file a tax return if you have net earnings from self-employment of $400 or more from gig work, even if it’s a side job, part-time or temporary. You must pay tax on income you earn from gig work. If you do gig work as an employee, your employer should withhold tax from your paycheck.”
Gig workers that earn more than $400 from gig work must also pay 15.3% of their gig work income for Social Security (12.4%) and Medicare (2.9%) taxes.
Money Challenges From Gig Work and Side Hustles
In fact, gig workers and side hustlers face a host of money-related challenges regarding:
- Cash flow. Earnings typically fluctuate from week to week or month to month, making it difficult to plan ahead and creating uncertainty in meeting expenses, saving for emergencies, or managing debt payments.
- Accessing to credit. Traditional lending models prioritize steady, verifiable income, which gig workers often lack. Side hustlers who haven’t formalized the creation of their “small business” may likewise struggle to get loans to help expand their enterprise.
- Accounting. Many gig workers and side hustlers underestimate the need for tools and systems to track and manage invoices and payments, file taxes, and for general accounting purposes.
- Benefits. Gig work and side hustles typically don’t provide traditional benefits like health insurance, retirement plans, or paid leave. Without employer-sponsored savings or retirement plans, gig workers must navigate complex individual options like IRAs.
The Rise of ‘Bizumers’ Creates New Banking Opportunities
The growth in gig work and side hustles is creating a new kind of consumer: a “Bizumer”—half consumer, half small business owner. This new consumer segment is creating new opportunities for banks and fintechs to meet Bizumers’ financial needs including:
- Financial management tools. For gig workers and side hustlers with irregular income streams, banks and fintechs can offer cash flow management tools and automated savings programs. For example, a gig worker dashboard integrated into banking apps could consolidate multiple income sources (e.g., Uber, DoorDash) for an easy overview of cash flow.
- Tax prep and accounting assistance, For gig workers and side hustlers wrestling with tax compliance, banks and fintechs could offer a debit or credit card that tags eligible purchases as “deductible” or provides year-end summaries for tax prep.
- Tailored credit. Using non-traditional data sources like earnings history, platform ratings (e.g., Uber driver ratings), and transaction history, banks and fintechs can adapt their loan underwriting policies to assess creditworthiness and develop “gig worker loans.” In addition, banks could provide small, low-interest cash advances tied to expected future income.
- Insurance products and benefits. Banks and fintechs can: 1) partner with fintechs or insurance providers to offer health, liability, and disability insurance plans directly through their platforms; 2) provide gig-specific IRA or SEP IRA accounts with easy contributions from irregular income streams; or 3) create a retirement savings account with flexible contributions and bank-matched incentives for gig workers.
- Faster payments. To provide gig workers and side hustlers faster access to their earnings, banks and fintechs can create instant payment solutions integrated with gig platforms to offer same-day payouts or create a gig-specific checking account with instant access to payments from platforms like Uber, Fiverr, or Etsy.
Does Your Side Hustle Need A New Bank Account?
According to Bankrate, there are signs that your side hustle requires a specialized bank account:
- It’s more than a hobby. If your side hustle consistently makes money, it’s a sign you have a business. The IRS recommends asking these questions: 1) Is the activity carried on in a businesslike manner? 2) Is your side gig profitable, or do you intend the activity to be profitable and do you possess the expertise to make it so? 3) Are you dependent on income from the hobby for any part of your livelihood?
- You’re worried about getting audited. If you get audited for your business profits and losses, the IRS can view only your business bank statements. The IRS would have to specifically request access to your personal accounts to review them, giving you an additional layer of defense.
- You’re ready to accept card transactions. If your customers want to pay with debit and credit cards, and you don’t have the ability to accept plastic, you could lose out on sales. Many banks and credit unions offer discounts on credit or debit card processing fees to account holders with business checking accounts.
The Race to Serve Bizumers
Two credit unions have jumpstarted the race to serve gig workers and side hustlers.
Vantage Credit Union in Arizona has launched HUSTL, a new digital financial brand built for freelancers and side hustlers. According to the credit union’s Chief Information Officer, Rob Hoyle, “the pandemic shattered the traditional 9 to 5 workday and opened up a whole new world of freelance and gig-based opportunities.”
In addition to interest-earning checking accounts, high-yield savings, and CDs—all with no monthly fees—HUSTL members can access tools and technology designed to help freelancers and side hustlers automatically save for taxes, create personalized savings goals for future projects, and track gig income, expenses, and cash flow.
Houston-based Members Choice Credit Union offers a Side Hustle Banking account with no fees and features like: 1) early (i.e., up to two days) access to accountholders’ direct deposits, and 2) a discount on personal and auto loan interest rates for accountholders who also have a consumer checking account with the credit union.
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