Staff Reports
In a surprise announcement, the IRS has granted a temporary reprieve to gig workers, sparing them from dealing with the arduous task of filing paperwork for low-dollar payments received through popular digital payment apps like Venmo and PayPal when they file their 2023 taxes. This welcome news comes as a relief to many gig workers who were concerned about the burden of complying with the new rules that were snuck into the Democrats’ 2021 pandemic stimulus package.
While the intention of the law was to ensure that gig workers are paying their fair share of taxes, critics argue that it unfairly places the onus on average Americans to differentiate between income earned through gig work and other types of payments, such as reimbursements for expenses or money received from friends and family. The $600 threshold was set to take effect last year, but due to mounting pressure, the IRS declared 2022 as a “transition” year. Now, with its latest move, the IRS has declared 2023 to be another transition year and has announced that the threshold for reporting in 2024 will be raised to $5,000, not $600.
IRS Commissioner Danny Werfel explained that the decision to delay implementation was made after gathering feedback from various third-party groups and realizing that more time was needed to effectively implement the new reporting requirements. Under the revised plan, gig workers will only be required to report payments totaling at least $20,000 across a minimum of 200 transactions for tax year 2023. Currently, around 14 million taxpayers receive a Form 1099-K, but if the $600 threshold were to go into effect, this number would rise to about 44 million, according to the Government Accountability Office (GAO).
IRS takes another mulligan, cancels new gig worker tax reporting for this yearhttps://t.co/8dSMdn3601 pic.twitter.com/Cvkf1SSbqw
— The Washington Times (@WashTimes) November 22, 2023
The GAO warns of potential confusion among taxpayers who would now have to grapple with determining profits and losses from ordinary activities like selling used furniture online. This could put them at risk of inaccurately reporting their incomes or failing to meet their tax obligations. The audit also criticizes the IRS for lacking a plan for enforcement and outreach. Republicans have not missed the opportunity to mock the Democrats’ handling of this issue, arguing that lowering the threshold to target more taxpayers was a misguided move. However, they also question the legality of the administration’s unilateral delay.
Despite the delay, taxpayers can still expect to receive their Form 1099-K in January. The law was primarily aimed at individuals who use platforms like Etsy or eBay to sell goods and receive payments through transaction apps. However, these apps are unable to automatically differentiate between payments from customers, reimbursements from friends, or gifts from relatives. It will be up to the individuals involved to label the transactions in the app to avoid receiving a 1099-K. If they still receive one, they will have to request a corrected form.
Furthermore, taxpayers may encounter additional challenges, such as when selling used furniture on platforms like eBay. As long as the selling price is lower than the purchase price, it is not considered taxable income. However, individuals may still receive a 1099-K and will need to figure out how to handle this discrepancy. The IRS’s Advisory Council has stated that the IRS needs to provide more assistance to taxpayers in resolving these issues.
The IRS hopes that by granting another year’s delay and adjusting next year’s filing threshold to $5,000 instead of the eventual $600, they will have sufficient time and flexibility to make necessary improvements to the reporting requirements and ensure compliance with the law. Commissioner Werfel emphasizes the agency’s commitment to working with third-party groups, tax professionals, and other stakeholders to simplify the process and make it as easy as possible for taxpayers to meet their obligations.
