Gig Economy Workers Brace for Unexpected Tax Bills This Season

As tax season approaches, gig workers are facing a new challenge that many are unaware of: changes to the 1099-K reporting threshold. The Internal Revenue Service (IRS) has implemented lower thresholds for the issuance of 1099-K forms, but a recent survey by Avalara, a tax compliance software company, found that 73% of gig workers were unaware of the new $5,000 reporting threshold. Additionally, 61% of respondents were unaware that 1099-K rules were changing at all.

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 their platform. Previously, the threshold for sending 1099-Ks was set at over 200 transactions in a given year, with a gross amount exceeding $20,000. However, under new rules that emerged from the 2021 American Rescue Plan, the threshold has been lowered to $600, and the 200-transaction minimum no longer applies.

The IRS has been phasing in these new requirements, with the $5,000 threshold applying for the current tax season. This change has caused confusion and stress for gig workers, who already have complex tax situations with multiple sources of income and deductions. The lower thresholds should not impact how much workers owe in taxes, but receiving these forms could suggest greater scrutiny of discrepancies between owed taxes and actual payments.

Looking ahead, the rules will continue to evolve, with a $2,500 threshold set for 2025 before the final $600 cutoff in 2026. According to Avalara, only 18% of workers were aware of these upcoming changes. As a result, more gig workers are likely to seek assistance from tax professionals to navigate the new regulations and reporting requirements.

Kael Kelly, general manager at Avalara 1099 & W-9, highlighted the challenges faced by gig workers in adapting to these new tax rules. He noted that this segment of the economy, known for its DIY approach to multiple jobs and non-traditional work, is now grappling with last-minute tax regulations that require careful attention.

In conclusion, gig workers should be aware of the changing 1099-K reporting thresholds and seek guidance from tax professionals to ensure compliance with the new rules. As the gig economy continues to grow, staying informed about tax requirements and regulations is essential for financial stability and peace of mind during tax season.