The IRS is Coming For the Gig Economy with a $600 Threshold for the 1099-K!
The Devil is loose and starting in January 2023 the IRS aka Uncle Sam aka the Tax Man is about to get you hustlers, freelancers, or whatever you call yourself! Before I go on let me say this.
Disclaimer: Hey Uncle Sam, I’m not going behind your back or anything. I’m just enlightening the people about the new rules for form 1099-K. You want your money right? With the least amount of headache right? Well, don’t get mad if I inform the people what’s up!
If you got a side hustle, do gigs or call yourself a freelancer and get paid from a 3rd party such as Venmo, Paypal, Stripe, Zelle, Paypal, Square, and others from now on known as the “3rd party,” you are in trouble because the Tax Man will know about you!
If you get paid from someone or a combination of multiple people and it totals over $600 in sales and you use a 3rd party, starting January 1, 2022, you will get a 1099-K.
What that means is that the IRS knows about those laptops you sold on Craiglist or the bootleg apps even your garage sales!
If you do not report the sales on your tax return you will be flagged and audited. They will estimate your taxes and you will get a fat tax bill with penalties!
You see when COVID hit last year a lot of people were making money on the side and the taxman wasn’t gonna get his share of taxes because he said the threshold before you could get a 1099-K was sales of $20k or over 200 transactions.
The taxman saw people getting unemployment, doing gigs on Fiveer, We Work, Craigslist, eBay, Etsy, Shopify, and others. So he said I’m gonna get ‘em! So now the threshold is only $600 which means once you make more than $600 in practically any sales you are gonna get a 1099-K which means the IRS knows about the money you made!
This is nuts people! But! There is a way out! Before I share it with you let me drop a few examples.
Let’s say you sell cakes and muffins on Facebook to family and friends. They pay you with one of the 3rd parties listed above. Probably Zelle and if you rake in more than $600 you will get a 1099-K and the IRS will know about your sales. Yeah, they will!
If you do not report the sales on your taxes because you did not know about the 1099-K the IRS won’t give a damn and you will get an audit letter and or tax bill.
Let’s say you flip merchandise on eBay. Before 2022 you didn’t get a 1099-K because you did not have over 20k in sales or you didn’t have at least 200 transactions. But now if that same seller has sales of at least $600 they will now get a 1099-K. It doesn’t matter how many transactions you had.
Let say you place an ad on Craiglist for your services. Say you are a freelancer of some sort. You tell the person it’s ok to pay you with a 3rd party like Zelle or Venmo for your services.
The freelancer ain’t gonna turn down any money and tells the prospect they take Zelle because there are no fees. So over the course of a year, you had five or ten people pay you via Zelle and the total cash you received was way over $600.
Guess what? The taxman will know about it via a 1099-K the 3rd party will send him.
The freelancer is going to get a 1099-K from the 3rd party as well. But only if you know about it. You may or may not get an email from a 3rd party. It’s your responsibility to check your account to see if they gave you a 1099-K. Usually, there is some type of year-end message letting you know.
I’m telling you now so pay attention, because not only will you get audited they will have you submit your bank statements if they think you are lying. Then you are gonna get a big-time fat tax bill!
All tax hell is about to break loose.
Here’s another one. Somebody gave you a loan or a gift of $1,000 two times this year. You were happy because you are in LA and they are in NY so they hooked you up via PayPal family and friends plan with no fees! Yay! The thing is you received money over $600 so you will get a 1099-K.
You might say that’s not fair! You would be right! I’m sure if you explain to the IRS it was a loan or gift and PROVE it you might be ok.
How about this? You had a moving sale and sold all types of stuff that was over $600 and you used your 3rd party account to take the payments. Guess what? You are gonna get a 1099-K!
You might say that’s F-up I already paid taxes on it. And so what? You are receiving money and you will pay taxes on it. Again!
This is what the taxman is saying:
“Taxpayers must report gig economy earnings when filing taxes
Whether it’s a full-time job or just a side hustle, taxpayers must report gig economy earnings on their tax return. Understanding how gig work can affect taxes may sound complicated but, it doesn’t have to be. The IRS offers several resources to help gig economy taxpayers properly fulfill their tax responsibilities.
Here are some things gig workers should keep in mind.
Gig work is taxable:
- Earnings from gig economy work is taxable, regardless of whether an individual receives information returns (1099-K). The reporting requirement for issuance of Form 1099-K changed for payments received in 2022 to totals exceeding $600, regardless of the total number of transactions. This means some gig workers will now receive an information return (1099-K). This is true even if the work is full-time, part-time or if an individual is paid in cash.
- Gig workers may also be required to make quarterly estimated income tax payments and pay their share of Social Security and Medicare taxes.”
I tell you this if the taxman is gonna tax your income you can come to the table with expenses! Lets play chess Uncle Sam! Write off a piece of your rent, utilities, car note, car insurance, cell phone, and more!
So now you must figure how to play the business tax game!
I told you, in the beginning, there is something you can do. And again Uncle Sam I am not handing out tax advice.
What you can do is tell people you want greenbacks!
Pay attention this year folks!