The IRS Wants More Info About Your Gig Income

This week, Craig Siminski, of CMS Retirement Income Planning, shares with us an article discussing how you may be affected by a new tax reporting requirement:

If you earn money through a payment app or online marketplace, you may be affected by a tax reporting change enacted by the 2021 American Rescue Plan. The law requires third-party settlement organizations to report business transactions totaling over $600 per year by issuing a Form 1099-K to the taxpayer and the IRS.

The previous reporting threshold was much higher ($20,000 and 200 business transactions).

This change was delayed for the 2023 tax year because it could trigger frustrating unintended consequences. For example, an estimated 44 million taxpayers might have received unexpected 1099-K forms — with amounts that may not have been taxable.

To provide more lead time, the IRS announced plans to drop the threshold from $20,000 to $5,000 in 2024 (without regard to the total number of transactions) as part of a phase-in of the $600 threshold.

Here are a few more things that may be helpful to know about this far-reaching new rule:

It’s Not Personal

Business transactions are payments for goods or services, including tips. Money received from the online sale of personal items (like old clothing or furniture), which are normally sold at a loss, is not taxable and generally doesn’t need to be reported. However, those in the business of reselling goods for a profit should carefully track the original costs of their purchases.

Payment apps are not required to report personal transactions intended as gifts or to split costs. The payer will typically be asked to note nonbusiness transactions.

It’s Not a Tax Change

Taxpayers who sell goods, rent out a vacation home, walk dogs, or perform any other type of freelance work through digital platforms were already responsible for self-reporting all income on their tax returns regardless of the threshold.

But now the IRS will have a way to cross-reference the information sent by…

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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.

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