The rise of gig economy work, including freelancing, ride-sharing, and other contract-based jobs, has drawn the attention of the IRS. As more workers join the gig economy, the IRS increases its scrutiny, which impacts how workers report taxes and meet compliance requirements.
Increased focus on income reporting
The IRS’s heightened focus on gig economy workers means stricter income reporting rules. Gig workers must report all income, including earnings from digital platforms. Platforms that many gig workers use now provide more detailed information to the IRS, which makes it harder for workers to omit income. Gig workers need to keep accurate records to ensure they report all earnings correctly.
New 1099-K threshold changes
The IRS lowered the threshold for reporting gig economy income through Form 1099-K. Previously, platforms only issued a 1099-K if earnings exceeded $20,000 and involved more than 200 transactions. Now, a 1099-K is required for earnings over $600, regardless of the number of transactions. This change means many gig workers who previously did not receive a 1099-K must now report smaller earnings.
Self-employment taxes and deductions
Gig economy workers are considered self-employed, which means they pay both income tax and self-employment tax, which covers Social Security and Medicare. This can lead to higher tax liabilities. However, gig workers can lower their tax burden by taking deductions for business expenses like mileage, supplies, and software. Accurate record-keeping helps maximize these deductions and stay compliant.
Increased risk of audits
With increased IRS scrutiny, gig workers face a higher risk of audits if they underreport income or claim excessive deductions. The IRS uses data from digital platforms to verify the accuracy of tax returns. Gig workers must ensure that their reported income matches platform records and that deductions remain reasonable to avoid potential audits or penalties.
Staying informed of these changes helps gig workers meet IRS expectations and avoid penalties.