As part of the American Rescue Plan Act of 2021, the IRS made some changes to the 1099-K tax form that freelancers, contractors and other workers who are part of the ever-growing “gig economy” should be aware of.  

As a quick refresher, individuals and businesses who sell goods or services and collect payment through credit or debit cards or other electronic payment systems like PayPal, Venmo, Cash App, or Stripe (these are also known as “third-party payment settlement entities” or “PSEs”) will generally receive a 1099-K from those PSEs and must report that income on their annual tax returns.

Up until the end of 2021, a 1099-K was only issued if you sold $20,000 or more in goods or services and had more than 200 transactions on those PSEs that year. Those relatively high thresholds meant that few taxpayers were actually receiving 1099-Ks.

Effective for the 2022 tax year, however, the IRS has drastically lowered those thresholds.  Now, anyone who receives $600 or more as payment for goods and/or services (including collection of gratuities/tips) on these PSEs will receive a 1099-K, and there is no longer a transaction minimum.  This means that more taxpayers will be receiving 1099-Ks to reflect income collected on PSEs than have received them in the past. (Personal transactions, like reimbursing a friend for your share of a restaurant tab, are not subject to these reporting requirements.)

It’s important to note that the IRS has always required that this income be reported on your tax return.  However, without receiving an associated tax form prompting compliance, this income has often been left unreported.  With the lowered 1099-K thresholds, however, that will no longer be the case. 

If you have any questions about reporting your income according to the recent changes to the 1099-K tax form, please contact our employment and business practice group.