Despite IRS delays in implementing lower thresholds for the issuance of 1099-K forms, most gig workers are unaware of the changed rules — meaning they’re in for a surprise this tax season.
In a January survey by Avalara, a tax compliance software company, 73% of gig workers said they did not know about the new $5,000 reporting threshold. The survey also found that 61% were unaware that 1099-K rules were changing at all.
It’s the latest indication that the IRS rule changes and delays have sowed confusion among self-employed Americans.
Payment apps and online marketplaces are required to distribute 1099-K tax forms to taxpayers with over a certain amount in business-related transactions on that platform. Companies like Venmo and Etsy must issue 1099-K forms to their users and sellers, and gig work companies like Uber are also required to send them to some of their workers. (Payments from family and friends, however, don’t count.)
Previously, the threshold for sending 1099-Ks was relatively high: The form went out when someone had over 200 transactions in a given year, and the gross amount exceeded $20,000. But under new rules that emerged from the 2021 American Rescue Plan, the threshold is being dropped to $600. The 200-transaction minimum no longer applies.
The IRS is phasing in the new requirements, and the shift has been repeatedly delayed and tweaked to give firms and taxpayers time to adjust. In November, the agency confirmed that payment processors and marketplaces would be required to report gross transactions exceeding $5,000 in 2024. That’s the threshold that applies for the current tax season (aka the returns most Americans will file by April 15).
These new 1099-K rules are adding stress for gig workers who already tend to have somewhat complicated tax situations, with multiple sources of income and lots of work-related deductions.
Amid the confusion, 37% of surveyed gig workers — including “online marketplace sellers, digital content creators and influencers, short-term rental hosts, and rideshare and delivery drivers,” per Avalara — said they believe this will be the first year they receive the 1099-K form.
While the lower thresholds shouldn’t affect how much anyone owes in taxes, it could still be alarming for gig workers to receive these forms, as the documentation could suggest greater scrutiny of discrepancies between the taxes gig workers owe and what they actually pay.
Going forward, the rules will continue to change. A $2,500 threshold will apply for 2025 before the final $600 cutoff kicks in the following year. According to Avalara, only 18% of workers knew the details of those two changes.
According to Avalara, more gig workers will likely be turning to tax professionals for assistance this year and beyond.
“This scrappy segment of our economy demonstrates DIY drive in creating a living from engaging in multiple jobs, non-traditional work, and sometimes essential services that support how consumers want to buy and receive goods and services,” Kael Kelly, general manager at Avalara 1099 & W-9, said in a release. “They’re now faced with the additional challenge of sorting out new, last-minute tax regulations and reporting requirements.”
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Despite the IRS’s delays in implementing lower thresholds for the issuance of 1099-K forms, many gig workers are unaware of the changed rules, which may come as a surprise this tax season. According to a January survey by Avalara, a tax compliance software company, 73% of gig workers were not aware of the new $5,000 reporting threshold, and 61% were unaware that the 1099-K rules were changing at all.
This lack of awareness is just one example of the confusion caused by the IRS’s rule changes and delays, particularly among self-employed Americans. Payment apps and online marketplaces are required to distribute 1099-K tax forms to taxpayers who have exceeded a certain amount in business-related transactions on their platform. This includes companies like Venmo and Etsy, as well as gig work companies like Uber. However, payments from family and friends are not included in this threshold.
Previously, the threshold for receiving a 1099-K form was relatively high, with the form being issued to those who had over 200 transactions and a gross amount exceeding $20,000 in a given year. However, under new rules from the 2021 American Rescue Plan, this threshold has been lowered to $600, and the 200-transaction minimum no longer applies.
The IRS has been phasing in these new requirements, and the shift has been repeatedly delayed and adjusted to give companies and taxpayers time to adjust. In November, the agency announced that payment processors and marketplaces would be required to report gross transactions exceeding $5,000 in 2024, which is the threshold that applies for the current tax season. These changes have added stress for gig workers, who already have complex tax situations with multiple sources of income and various work-related deductions.
According to the survey by Avalara, 37% of gig workers, including online marketplace sellers, digital content creators, influencers, short-term rental hosts, and rideshare and delivery drivers, believe this will be the first year they receive a 1099-K form. While the lower thresholds should not affect the amount of taxes owed, receiving these forms may still be alarming for gig workers as it could suggest greater scrutiny of discrepancies between their taxes owed and what they actually pay.
Looking ahead, the rules will continue to change, with a $2,500 threshold applying for 2025 before the final $600 cutoff takes effect the following year. However, according to Avalara, only 18% of workers were aware of these changes. As a result, more gig workers may turn to tax professionals for assistance this year and in the future.
Overall, the new 1099-K rules are causing confusion and stress for gig workers, who make up a significant portion of our economy. It is important for these workers to stay informed and seek professional help if needed to ensure they are properly reporting their income and paying their taxes.
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