Tax law is a tricky beast, and when it comes to reporting income earned through apps like Venmo, Zelle, Cash App, or PayPal, it seems to be playing catch-up. For freelancers and gig workers relying on these platforms for payments, there are some changes on the horizon for the 2024 tax year. While the amount of taxes owed remains the same, the way income is reported with 1099-K forms is set to change. Originally slated for the 2023 tax year, these changes have been pushed back, giving freelancers and small business owners a bit more time to wrap their heads around the new requirements.
Currently, if you receive payments through third-party apps totaling $20,000 or more, or have more than 200 transactions, you are required to report this income using 1099-K forms. However, failing to do so can lead to what the IRS charmingly refers to as a “Matching error.” This means that if someone sending you money through Venmo or Cash App reports it to the IRS, but you fail to do the same, it could raise red flags at the agency.
Due to the evolving nature of these guidelines, there have been instances where platforms mistakenly send out 1099-K forms – for activities such as expense sharing between roommates or transactions among family and friends. If you find yourself with an erroneous form, the first step is to reach out to the issuing company and request an updated version. Failing that, the IRS advises taxpayers to zero out the income on their tax return, using the description “Form 1099-K Received in Error.”
To aid taxpayers navigating these changes, the IRS has launched an online Gig Economy Tax Center. This resource is specifically tailored to address the unique tax questions and needs of freelancers and individuals working in the informal economy. Additionally, the IRS has committed to reaching out to individuals if they notice any disparities between the income reported on 1099-K forms and what is reported by the issuing companies.
In light of the complexities and challenges posed by these new reporting requirements, the IRS has opted to grant taxpayers an additional year to adjust and adapt. This extension is aimed at preventing potential headaches for taxpayers, tax professionals, and others in the realm of freelance and gig work. So, if you find yourself scratching your head over how to navigate these tax changes, rest assured that you’re not alone. With a bit of patience and guidance, you can ensure that you stay on the right side of the taxman while continuing to thrive in the gig economy.
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