Get The Gig With Gig Workers

Your borrowers might be among 39% of American workforce that freelances

Insider

Contributing Writer

With tax season in full swing, let’s talk about calculating tax returns properly — more specifically, how to calculate income for gig workers.

Many Americans are not working the traditional 40-hour-a-week salaried job anymore. According to Upwork’s Freelance Forward report, in 2022, 39% of the American workforce did some sort of freelance work, so you can expect to see some of these workers as your borrowers.

Because their income is variable, it’s going to take some extra preparation and calculation to best support them in the homebuying process. To better work with gig workers, and to grow your business among this group, let’s talk about who they are and the questions to ask them to help you with calculating their incomes.

Defining the Gig Economy

The IRS defines the gig economy as “activit[ies] where people earn income providing on-demand work, services or goods. Often, it’s through a digital platform like an app or website.”

The kind of gig workers that may first come to mind are rideshare drivers and food delivery drivers, but there are a good number of services that fall under the gig economy umbrella. It has been on the rise for years but took off during the pandemic as many people lost their full-time jobs and resorted to gig work to make ends meet.

The 2022 Freelance Forward report also found that most gig workers skewed toward younger generations. Freelance professionals in the U.S. workforce represent 43% of Gen Z, 46% of millennials, 35% of Gen X, and 27% of Baby Boomers. Many of these workers have chosen the gig economy because of the earning potential and flexibility it provides.

Questions To Ask

When working with these borrowers, you’ll need to be prepared with the necessary questions to complete their application and ensure their income can be calculated correctly.

To get a basic understanding of your borrower’s income, start by finding out if they own the business. If their share of ownership is 25% or more, it makes a difference in how you’ll calculate.

When working with these borrowers … be prepared with the necessary questions to complete their application and ensure their income can be calculated correctly.

Next, find out how long they have been receiving this income and if they have reported all of the income on their tax returns. Finally, ask about how steady their income from gig work has been. Have they had any gaps in receiving this type of income?

The answers to these questions will be essential when it comes time to crunch the numbers and calculate their income.

Calculating Income

A speedy underwriting process and first-pass approval require that you get the right income on the first try. Following agency guidelines will help you avoid any mistakes. Remember that when a borrower has a 25% or more ownership stake, you will require both personal and business tax returns, which must demonstrate that at least 12 months of self-employed income has been filed. And if your borrower receives a 1099, then the borrower’s personal tax returns are required. Finally, make sure you review the stability of the income — if the income is inconsistent and not stable, it may not be eligible as qualifying income.

Your borrowers are changing, and you need to change with them. As more individuals opt for gig work, lenders need to be able to calculate their income accurately and make sure they document their math. Being prepared for the gig economy not only helps get these workers into homes but can help loan officers differentiate themselves as the right resource for gig workers.