How gig workers can prepare for changing tax requirements

NEW YORK (AP) – Workers across industries are increasingly receiving some or all of their income through apps. These include tutors, graphic designers, hair stylists and every type of freelance and self-employed workers, in addition to sellers who sell products online through Etsy, eBay, Amazon and other sites. However, tax law remains to be catching up with regards to the very best approach to report this income.

If you are a freelancer or worker and receives a commission through apps like Venmo, Zelle, Cash App or PayPal, your tax reporting requirements will change for the 2024 tax 12 months. The law won’t affect how much taxes you owe, but it can change the way you report your income for using 1099-K forms.

The changes were purported to apply from the 2023 tax 12 months, but have been delayed. The deadline for filing your tax return is April 15.

For the present tax 12 months, freelancers and small business owners still only need to use Forms 1099-K to report third-party app payments totaling $20,000 and any variety of payments over 200. However, starting next 12 months, the brink will probably be just $5,000 , which can eventually be reduced to $600. The changes were purported to apply from the 2023 tax 12 months, but have been delayed.

Some within the industry say the brand new law will profit each freelancers and the IRS by streamlining information collection, especially for self-employed people and online sellers.

Freelancers, gig workers and online sellers pay taxes on their income no matter whether or not they meet the reporting threshold for 1099-K forms, but tracking each payment can be difficult, especially across web sites and apps. According to experts, this can result in confusion and underpayments.

Any change will impact platforms, corporations and individuals, so it’s value starting preparations now. Here’s what it’s essential to know:

What should I do to prepare for the brand new 1099-K reporting threshold?

If you are already closely tracking your freelancing income paid through Venmo, Zelle, Cash App, PayPal, and other sites, you are in good condition. The foremost difference will probably be that these platforms will issue additional forms with each transaction. This should make it even easier to report appropriately to the tax office, although there will probably be more formalities.

Currently, if someone pays a freelancer through Venmo, Zelle, or CashApp, sends a form to the IRS and reports that payment, however the freelancer doesn’t report the income on the identical form, this creates a “matching error” for the agency. The change will each make sure that taxpayers receive the suitable refund and that the IRS receives the suitable payment.

What happens if I receive a Form 1099-K by mistake?

According to the IRS, in some cases, due partly to changing guidance, platforms may send taxpayers incorrect 1099-K forms — for example, for transactions between family and friends or for splitting expenses between roommates.

The very first thing you must do is attempt to get an updated form by contacting the corporate that issued the shape incorrectly. If you can not obtain such a document in a timely manner, the IRS recommends zeroing out the income in your tax return with the outline “Form 1099-K received in error.” This line appears on Form 1040 – Additional Income and Income Adjustments. You should enter: “Part I – Line 8z – Other Income – Form 1099-K Received in Error.”

Why did the IRS delay implementing the change for the second 12 months in a row?

The change, which was scheduled to come back into effect this 12 months, was postponed again in November. The IRS has decided to present taxpayers one other 12 months to comply with the brand new reporting requirements.

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“Taking this phased approach is the right thing to do for tax administration and prevents unnecessary confusion,” IRS Commissioner Danny Werfel said in November. “It is clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area.”

What advice and guidelines does the IRS have for freelancers?

The IRS has a web site Gig Economy Tax Center which focuses particularly on tax issues and the needs of freelancers and other workers within the informal economy. The site discusses common problems and pitfalls.

What happens if I make a mistake reporting income on Forms 1099-K?

The IRS will contact you if it notices discrepancies between the income reported on Form 1099-K by taxpayers and corporations issuing the forms, each this 12 months and next. Please note that you could report income from all platforms this fashion, including YouTube ads and Patreon subscriptions.

One approach to be certain all income is recorded accurately is to maneuver all payments out of your PayPal, Venmo, and Cash App accounts to a conventional checking account, moderately than keeping them on third-party platforms.