As more workers are turning to apps to receive income, tax law is struggling to keep up with the changing landscape. For freelancers and self-employed individuals who receive payments through apps like Venmo, Zelle, and PayPal, reporting requirements will change for the 2024 tax year. The current threshold for reporting income using 1099-K forms is $20,000, but this will be lowered to $5,000 next year and eventually to $600. While the changes were initially supposed to take effect for the 2023 tax year, they have been delayed. This means that freelancers and small business owners will need to keep track of their income from multiple sources and apps to ensure accurate reporting to the IRS.
Some experts believe that the new reporting requirements will benefit both freelancers and the IRS by improving information gathering and reducing the likelihood of errors or underpayment. Keeping track of every payment from different apps and sites can be challenging, leading to confusion for taxpayers. With the changes in reporting thresholds, it is important for individuals and businesses to start preparing for the upcoming tax year to ensure compliance with the new requirements.
Platforms like Venmo, Zelle, Cash App, and PayPal will now issue additional forms for every transaction, making reporting income to the IRS easier but potentially more paperwork-intensive. The IRS has also advised taxpayers on what to do if they mistakenly receive a 1099-K form, which could happen due to errors in reporting or changing guidance. Taxpayers can contact the issuing company to correct the error or zero out the income on their tax return if they are unable to get an updated form in a timely manner.
The IRS has delayed the implementation of these changes for a second year in a row to allow taxpayers more time to adjust to the new reporting requirements. This phased-in approach aims to prevent unnecessary confusion and ensure a smoother transition for freelancers and gig workers. The IRS offers guidance through its online Gig Economy Tax Center, which focuses on the tax questions and needs of freelancers and workers in the informal economy. It is crucial for individuals to accurately report all income, including payments from platforms like YouTube and Patreon, to avoid discrepancies with the IRS.
If there are discrepancies between income reported on 1099-K forms by taxpayers and the companies issuing the forms, the IRS will address them. It is important for individuals to transfer all payments from third-party platforms to a traditional bank account to ensure that all income is accurately captured for tax reporting purposes. The IRS emphasizes the importance of accurate income reporting to prevent matching errors and ensure that taxpayers receive proper refunds while also meeting their tax obligations.
