Independent contractors who say their income is in effect taxed twice by an assessment on unincorporated businesses are mobilizing to lobby City Hall to exempt them from future payments.

The founder and executive director of the Freelancers Union, which represents 50,000 independent workers in the city, Sara Horowitz, said freelancers are like “dolphins in the tuna net,” stuck paying a tax not designed for them.

“Most of these laws were written in another time, when people didn’t work independently,” she said. “Freelancers just got caught in that.”
The tax in question, known as the unincorporated business tax, is a 4% income tax on people operating unincorporated businesses in the city. Those charged also pay federal, state, and city income taxes.

A freelance graphic designer whose net income after deductions in 2005 was $95,000, for example, would have had to pay about $3,800 in unincorporated business tax, according to the union.

Ms. Horowitz said it is appropriate for some individuals to pay this tax, but that independent workers should not pay higher income taxes simply because they work for themselves. Unincorporated businesses in New York City, including partnerships, estates, trusts, and limited liability companies, have been charged the tax since 1966.

Ms. Horowitz said she plans to speak out against what she calls the unnecessary taxing of independent workers at a Small Business Committee hearing at City Hall today.

Council Member David Yassky of Brooklyn, the chairman of the committee, is proposing that freelancers earning less than $100,000 be exempt from the unincorporated business tax. In his preliminary budget, Mayor Bloomberg proposed lowering the tax through reductions and credits, but Mr. Yassky said the plan does not go far enough.

“They really should be treated just like if you work for a bank or a newspaper and you’re a salaried employee,” Ms. Yassky said. For freelancers, the tax “really functions as a double tax on their income.”

A spokesman for Mr. Bloomberg, John Gallagher, said, “We’ve proposed a billion dollars in tax cuts for next year that we believe strike the right balance between cutting the UBT, and other taxes that mainly affect small businesses, property owners. We’ve also proposed the elimination of the city sales tax on all shoes and clothing.”

Two people earning $90,000 pay dramatically different amounts in taxes depending on whether they work for someone else or for themselves. Under the current law, the freelancer would pay $4,515 in taxes and the private employee would pay $2,747. Under Mr. Bloomberg’s proposal, the freelancer would pay $3,267 in taxes.

“I think there’s a clear case to just get rid of it altogether,” Mr. Yassky said. “We need to have a sustained discussion on how to change government regulation of the workplace to take account of the rise of freelance workers and independent workers.”

The number of self-employed workers in the city is increasing and is credited with driving employment rates, according to an article in the January edition of Economic Notes, a newsletter published by Comptroller William Thompson.

Data from the U.S. Bureau of Economic Analysis show the city’s job base has grown by about 700,000 jobs since 1975 and self-employed workers are responsible for about two-thirds of the jump, the article states.

Ms. Horowitz said freelance workers play an integral role in increasing the city’s economy through their work in the press, finance, the arts, and other fields, yet they have trouble getting health insurance and retirement benefits and are ineligible for unemployment support, she said.

She said her organization is meant to serve a new kind of union advocating for independent workers. It provides health insurance to 15,000 of its members.

If Ms. Horowitz had to choose between the status quo and Mr. Bloomberg’s plan, she said she’d opt for his tax reduction strategy. But she said the city should exempt independent workers altogether from paying this extra tax.

“They should not be overtaxing whom they rely on,” she said. “They are making this a hard place for creative workers to be.”