​1099-K and the GIG Economy- Does It Have Anything To Do With Me?

Did you sell goods online? Did you rent out property or part of it? Did you provide creative or professional services? Did you drive your car for paid rides or deliveries? Then you did what the IRS calls “Gig Work”.

Gig Work is activity you do to earn income through an app or website or for cash. Another way to explain this: Do you use Digital/Freelancing Platforms (businesses) to match your services or goods with customers via apps or websites? Do you use technology to arrange transactions that generate revenue/income from assets you possess such as boats, homes, backyard pool or from services you provide such as rides, household chores, or technology services? These include ridesharing services (Uber, Lyft, Juno); delivery services (Instacart, Postmates, Dumpling); crafts and handmade items marketplaces (Amazon, Etsy, eBid, Facebook Marketplace, etc.); reselling (Poshmart, Offer-Up, StockX); on-demand labor and repairs services (Carecom, Closet Collective, Hello Tech, Spare 5, Fivrr, Your Mechanic); and property and space rentals (Home Away, VRBO, Air BnB). These are just examples of the countless Gig Economy income sources of which millions are taking advantage.

First, you have always been required to report all income on your tax return, even if you don’t receive Forms 1099 from the businesses that pay you, even if you get paid in cash. Did you earn money from a hobby, making things and selling them but it’s not really a business? Yes, you have always been required to report all the income on your tax return.
Did you have to pay taxes on that income? It all depended on the amounts you earned, your expenses, the type of income, and many variables. There is also a difference between income taxes and self-employment taxes. No matter the circumstances or amounts, you have always been required to report all income on your tax return, even if it turned out you did not owe any taxes on that income after making the appropriate adjustments on the various forms.

So, what is all the hoopla surrounding the new 1099-K reporting? First, it is not new. In 2008, the IRS introduced Form 1099-K, Payment Card and Third-Party Network Transactions to encourage compliance and to ensure online retailers were reporting the appropriate amount of sales for tax purposes.  This effects both GIG Economy workers AND those who own a business that accepts payments via credit or debit cards.
Form 1099-K tracks payments you’ve received through a payment settlement entity, or PSE. That includes tracking payments made through credit cards, online payment services like Venmo or PayPal, and the Digital/Freelancing platforms mentioned earlier that manage client payments for you.

The IRS changed the 1099-K reporting with the 2021 American Rescue Plan. It does not take effect until January 2022 transactions!

Before 2022, you received the 1099-K from payment card transactions (e.g., debit, credit or stored-value cards), and/or in settlement of third-party payment network transactions above the minimum reporting thresholds of more than $20,000 worth of payments, and the service processed more than 200 individual payments. Now, the minimum reporting thresholds is if the service processed more than $600 worth of payments regardless of the number of individual payments or transactions.

The biggest problem is going to be non-taxable transactions that are run through the third-party payment networks. For example, you and your friends regularly go out to eat and you split the bill by everyone sending the money to you through their bank accounts and then you pay for it with your own card. The credit card processor will not be able to differentiate the payment and may issue a Form 1099-K that includes the personal payment. That is not where the problem will occur. It will be the notice you get if you receive a Form 1099-K, Payment Card and Third-Party Network Transactions and the amount listed does not appear on your tax return.

Number one suggestion? If you have a business or even a hobby, have a separate bank account from your personal bank account! It will make tracking taxable versus non-taxable transactions easier.

Number two suggestion? Stay up to date on the reporting requirements and how to put the income on your tax return. Remember, ALL INCOME, whether cash or credit card, IS reportable income on your tax return. Will you have to pay taxes on all that income? The answer to that is “it depends”. The IRS has lots of resources on its website for deciding what is an expense and what can be claimed against your income. It is possible that this may just be the year you want a professional to help you.

Number three suggestion? Check with your state and local taxing authorities to see what filing requirements they have. They can be dramatically different than the Federal IRS requirements. The income from sales IS going to be reported to the taxing authorities. For example: you live in California. You resell items through a couple different online platforms and apps. You will be responsible for filing your Federal Income Tax return, your California Income Tax return, AND the California Department of Tax and Fee Administration (CDTFA) tax return. 
​#ajoyoustaxresult #1099k #gigworker