What to Do With Form 1099-K?
Our 2-Minute Guide for Gig Workers
Gig workers who use third-party payment applications like Venmo or CashApp may soon be seeing some changes. The IRS has recently reminded taxpayers that if they earned over $600 in income from selling goods or providing services, they may receive Form 1099-K.
So, what is Form 1099-K, and what does receiving one mean for you?
What is Form 1099-K? (And Why Did I Get One?)
Form 1099-K, Payment Card, and Third-Party Network Transactions is used to report certain types of payment transactions. The form is sent to both the taxpayer and IRS. A payment card transaction would be accepting payment in the form of a gift card, credit card, or debit card. A third-party network transaction would be one processed through a network such as PayPal, Venmo, or CashApp. Companies like Uber may also issue a Form 1099-K.
Beginning January 1st, 2022, third-party payment processors were required to report business transactions of over $600 to the IRS on Form 1099-K. Previously, that reporting threshold was $20,000 and more than 200 transactions. This change means that a lot of taxpayers, especially those who are gig workers, will be receiving a Form 1099-K for the first time.
What Does This Mean for You?
First, it is important to note that there are no changes to how your income is taxed. All income that was taxable before is still taxable. This change only affects third-party reporting of that income.
It is also important to note that money received through these applications from friends or family members as personal gifts or transactions is NOT taxable. This has not changed.
Many people in the gig economy have more than one business venture, which can make record-keeping overwhelming and complicated. However, not keeping accurate records can damage your financial future. Since the IRS will receive the same 1099-K, they will already know how much income you received. Therefore, it is critical to keep accurate records and report ALL income when you file your taxes.
Most newcomers to business will file a Schedule C with their Form 1040 tax return this next year. On that Schedule C, you add the business’s income and the related business expenses. See this related article and video on the BEST WAY to keep up with your business finances.
Hey, forgetting to report this income will lead to an IRS audit. They hired new agents to help find “Under-reported income”.
Another reason record-keeping is so critical is because you could end up being audited. Even taxpayers or business owners who do nothing wrong sometimes find themselves being audited. It isn’t fair, but it DOES happen. Having adequate records will help ensure a positive outcome to that audit.
Important note: Even if you don’t receive a Form 1099-K for your income, that doesn’t mean you don’t have to report it. You still have a responsibility to report ALL income. More times than not the IRS WILL find out. Failure to report your income can result in fines, penalties, and in some cases even jail time.
If you think that you haven’t reported all your income correctly in the past, it may be time to contact a tax attorney.
If you are a self-employed gig worker who is currently under audit, you may also want to contact a tax attorney. A tax attorney has the skills and knowledge to ensure you get the best possible audit outcome. Remember, an audit can have serious financial and legal implications. It is always in your best interest to hire a professional.