The gig economy has become a significant part of the workforce in recent years, with many individuals turning to platforms like Uber, Airbnb, and Etsy to earn a living. However, with the rise of the gig economy comes new challenges, particularly when it comes to taxes. Recently, gig economy workers have been faced with a lower threshold for 1099-K income reporting to the IRS, and a new survey conducted by Avalara, Inc. has revealed that many of them are surprised to learn that this will result in higher tax bills for them.
The survey, which included online marketplace sellers, digital content creators and influencers, short-term rental hosts, and rideshare and delivery drivers, shed light on the lack of awareness among gig workers regarding the changes to the 1099-K reporting threshold. Despite 61% of respondents claiming to be knowledgeable about Form 1099-K and its purpose, an equal 61% were unaware that the reporting threshold had been lowered for this tax year and subsequent years. Additionally, a significant 74% of gig workers surveyed could not identify the payment threshold above which they would be required to report income to the IRS in 2025.
The implications of these new reporting thresholds are significant for gig workers, with 37% predicting that their business will be profitable following tax season, 36% expecting to break even, and 17% foreseeing a loss due to the IRS changes. As a result, many gig workers are turning to tax professionals for assistance, with 21% planning to seek professional advice for the first time. Given that 75% of survey respondents have two or more sources of income, and 45% have three or more, the expertise of accountants and bookkeepers will be crucial in navigating the reporting and tax implications of multiple income sources.
Looking ahead, gig workers are considering various strategies to navigate the new reporting thresholds. Over 20% of workers are planning to quit one or more of their gig economy jobs to avoid crossing the $2,500 1099-K threshold next year, while 19% are changing their earnings strategy. Additionally, 15% of respondents will be using tax software for the first time, and 20% plan to take on more under-the-table work to circumvent IRS reporting rules associated with platforms like PayPal and Venmo.
In light of these challenges, Kael Kelly, General Manager of Avalara 1099 & W-9, emphasized the need for gig economy workers to have access to fast, robust, easy, and affordable ways to e-file 1099 forms. As gig workers continue to navigate the evolving tax landscape, it is clear that staying informed and seeking professional guidance will be essential in ensuring compliance and financial stability in the gig economy.
