Tax implications for the transcription crowd, and other freelancers, varies from country to country. Certainly, for some, the lure of perceived tax-free earnings is an appealing consideration – but is there really such a thing? Transcription crowd services are just one of an increasing plethora of crowd-sourced occupations that governments must somehow govern – and tax. The issue of how to tax the freelance and transcription crowds is tricky and part and parcel of a taxing challenge with regard to the internet in general.
Meanwhile the onus of who should bear the brunt of disclosure responsibility is at the heart of the question of how governments might tax transcription, and other, freelance services. That is the typical challenge that administrations, like the Obama government in the United States, are trying to manage. To address this, the Obama government implemented an amnesty of sorts for the transcription crowd, freelancers in general, and their employers.
An initiative that reflects a clear intent to manage taxation on the new terms required by an internet-powered world is the Voluntary Classification Settlement Program (VCSP). Under this program, transcription crowd employers can reclassify freelance workers from independent contractors to employees for periods going forward. They can do this without being penalized for not paying full employer taxes for periods past.
This is a great incentive to get tax dodgers back in the game but it isn’t all that easy for a raft of transcription crowd employers who use freelancers acquired through websites. Crowd sourcing and online freelancing are relatively new phenomenon, so there are no cut and dried laws regarding crowd funded/freelanced money, even now.
There are four big issues around transcription crowd income and wages in relation to tax obligations, these are:
Company’s using a transcription crowd are earning money for a product or service and so income tax is a given – but who is responsible for paying income tax for the transcription crowd. The question of whether these freelancers’ income should be taxed at the source is a hot potato because of the complexities of identifying hundreds, maybe thousands, of transcribers who may only provide a service for a number of minutes and need not even provide these with full disclosure of their details.
At present, contractors (the category many transcription freelancers fall under) are responsible for paying their own tax but when they don’t, who pays and how. The details transcription crowd employers are required to obtain from the transcription freelancer remains ambiguous, as does the definition of a transcription contractor in general.
When a transcription crowd employer offers money, and in return receives a salable product (transcription), the money received is from sales and is therefore liable for sales tax. This is clear-cut, but what about when transcription crowd employers pay transcribers in prizes or incentives via the internet – well that is a whole other kettle of fish. For the most part this will be considered payment and therefore liable to sales tax. How much sales tax would be established by the value of the offering and determining that is a whole other problem.
Funds earned directly from transcription crowd sales, may fall into the equity category but this is another subject of debate at least in the United States. For those who operate globally an understanding of equity on a country-by-country basis is essential for tax law adherence.
Gift is the most appealing category to have transcription crowd payments labeled under. Section 118 and 102 of the Internal Revenue Code in the United States excludes gifts from taxable income. The benefits are obvious but it is not an easy feat to prove these payments are gifts, even if you are paying in prizes or other incentives.
For the transcription crowd employer the most fundamental tax obligation is to report payments made to the transcription crowd. How creative the books get from there is still quite ambiguous when the payments are made to a transcription crowd who will have, in some instances, no relationship with the employer apart from providing a brief and sometimes anonymous service. The onus is still, for now at least, on that individual to pay income tax for funds earned in the crowd.