3 Reasons Why Millennials are Prone to Tax Problems

In the United States, Millennials are now the most represented generation in the workforce — and therefore, the most represented generation among active taxpayers. In order to prepare for an inevitable influx of millennial clients, we must to fully understand the concerns, obstacles, and achievements that define this generation.

1. The Transition from Dependents to Independence 

Current tax laws allow parents to claim dependents until they are 19 years old. This grace period extends to 24 if they are a full-time student — and with 61% of Millenials attending college, independence is being delayed at a much higher rate than before. Because Millenials aren’t adequately prepared for this transition, they are increasingly likely to make simple mistakes during their first filing.   Because more and more Millennials no longer qualify as independents every day, it’s not uncommon for these young, inexperienced taxpayers to be slapped with a tax bill they are unable to pay. Resolving their cases and subsequently enrolling them in TAP can be the beginning of a long-term professional relationship.

2. The Proliferation of the Gig Economy 

Whether they need designers for a website or drivers for rideshare, companies are increasingly hiring temporary contractors in a ploy to slash operating costs. Due to oversaturation and stagnating wages, Millenials find themselves increasingly ensnared in this scheme — they will comprise about 42% of the gig economy. While this type of employment offers freedom and flexibility, it oftentimes pays poorly — and catches contractors by surprise come tax season.   Many newcomers to contract work don’t understand that they are not actual employees — the company they work for doesn’t withhold taxes or pay into social security or Medicare. New contractors may not be aware that they may be required to pay quarterly taxes and a self-employment tax. When April hits, Millennial contractors who are unfamiliar with tax law will be shocked to find that they have to pay up — but they already spent the money that should have gone to taxes. Community Tax can help young contract workers resolve these problems and set them up for success in future filing seasons.

3. The Decline of Permanent Residency

Young people are far less dependent on physical mail than their predecessors. Most — if not all — of their bills can be paid online, circumventing the necessity for checking the mail regularly. Because the IRS still depends heavily on communication via post, young people may completely miss any messages, instructions, or issues that the IRS is trying to bring to their attention.   Additionally, the vast majority of millennials don’t have a permanent address due to high property prices in tandem with stagnating wages. This forces more and more young people to perpetually rent, resulting in frequent address changes. This can make it a difficult and lengthy process for the IRS to catch up with them — with the tax debt inexorably accruing in the background.