If you have a scramble in 2022, you could have a higher-than-expected bill when you file your tax return next year.
A new federal requirement that took effect this year requires companies that offer platforms for the sale of goods and services — like Etsy and Airbnb — to issue IRS Form 1099-K to anyone who received more than $600 a year through these platforms, Bloomberg reports.
Businesses must also send a copy of the form to the IRS.
Form 1099-K shows the total transactions of a gig economy platform user through such platform.
In previous years, platforms were required to issue Form 1099-K only if a user of the platform made more than 200 transactions. and received payments totaling more than $20,000 per year. In contrast, the new requirement, a provision of the American Rescue Plan Act of 2021, applies regardless of the number of transactions a gig worker engages in.
It is important to note that the new requirement does not really change anything. Typically, on-demand labor income is taxable – and has been since long before the American Rescue Plan Act was enacted into federal law.
However, some gig workers may have avoided paying these taxes in the past, knowing that they were unlikely to get caught if the IRS did not receive reports of their gig earnings.
Although gig income has been taxable since before the new requirement, Bloomberg reports that many gig workers who are aware of the requirement are expressing displeasure. As the publication reports, one worker tweeted, “So we say tax the rich and they decide to tax the hustles.
Even some small business experts note that the new requirement is far more likely to hurt average entrepreneurs than well-heeled business operators.
Sandra O’Neill, a tax attorney and partner at Bowditch & Dewey, told Bloomberg that construction workers who aren’t careful could end up facing the wrath of the IRS:
“It may be a boon for the IRS, but it’s not coming from the billionaires, it’s coming from the small businesses. Billionaires are much harder to prosecute. Amazon is much harder to go after. If you have someone making a mistake – a small business – it’s very easy to blame them.
As we reported, estimates suggest the new requirement could result in $8.4 billion in additional tax revenue for the federal government in fiscal year 2031.
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