Freelancers and gig workers who receive payments through apps like Venmo, Zelle, Cash App, or PayPal will face changing tax reporting requirements for the 2024 tax year. The threshold for reporting income using 1099-K forms will be lowered to $5,000, eventually dropping to $600. This change, originally set to take effect for the 2023 tax year, has been delayed to give taxpayers more time to adjust.
The new law aims to improve information gathering for self-employed individuals and online sellers. Currently, freelancers and small business owners only need to use 1099-K forms to report third-party app payments totaling $20,000 and any number of payments above 200. However, the upcoming changes will significantly reduce this threshold, making it essential for freelancers to keep accurate track of their income across various platforms and apps.
Platforms will issue additional forms for every transaction, simplifying the reporting process to the IRS. This change will help avoid “matching errors,” where a payer reports income to the IRS, but the recipient does not, potentially resulting in underpayment or confusion.
If a taxpayer mistakenly receives a 1099-K form, they should try to obtain an updated form from the issuing company. If that’s not possible, they should zero out the income on their tax return with a specific description.
The IRS has an online Gig Economy Tax Center that provides guidance on tax questions and needs specific to freelancers and other workers in the informal economy. It’s crucial for freelancers to report all income accurately, including revenue from platforms like YouTube ads and Patreon subscriptions.
To ensure accurate income reporting, freelancers should transfer all payments from third-party platforms to a traditional bank account.
The delay in implementing the change was announced in November, with the IRS Commissioner Danny Werfel stating that the phased-in approach is the right thing to do for tax administration and will prevent unnecessary confusion for taxpayers and tax professionals.
As the tax filing deadline approaches, freelancers and gig workers should prepare for these changes by keeping accurate records of their income and familiarizing themselves with the new reporting requirements.
