Summary

The IRS has implemented a new rule requiring gig economy workers to report earnings over $600, effective for the 2022 tax year, which is a significant change from the previous$ 20,000 threshold.

Abstract

The Internal Revenue Service (IRS) has introduced a new reporting requirement for gig economy workers. As of January 2022, any earnings exceeding $600 must be reported to the IRS, a substantial decrease from the previous threshold of$ 20,000 or 200 transactions. This change means that gig economy workers, including those who receive payments through third-party networks like PayPal, Stripe, and platforms such as Uber and Lyft, will now receive a 1099-K form for their tax filings. The new rule aims to ensure that the IRS captures income that was previously underreported. It is important to note that the misconception about the IRS monitoring all bank accounts with balances over $600 has been debunked; the current administration's proposal for such monitoring was not approved by Congress. Taxpayers should be aware that all income is taxable, regardless of whether it exceeds the$ 600 threshold, and should keep accurate records of their earnings.

Opinions

The author clarifies that the IRS will not be monitoring individual bank accounts for transactions, correcting misinformation circulated in various reports.
Senator Manchin is credited with preventing the proposal that would have allowed the IRS to monitor bank accounts with balances over $600.
The author suggests that gig economy workers should be diligent in tracking their income, even if it does not exceed the $600 threshold, as all income is subject to taxation.
The author recommends a YouTube video from "Not Your Dad’s CPA" for further understanding of the new IRS reporting requirements for gig economy workers.
The author emphasizes the importance of accurate record-keeping and suggests using spreadsheets to reconcile payments received with the amounts reported on 1099 forms.
The author provides a disclaimer that the information provided is not financial advice and encourages readers to consult with a financial advisor, CPA, or accountant for personalized advice.
The author promotes their Medium membership and a cost-effective AI service as additional resources for readers.

Taxes

The IRS Has a New $600 Rule for 2022 for All Gig Economy Workers

Death and Taxes — and Now a $600 Reporting Requirement Rule

First, here is not what is happening. The IRS is not going to monitor your account for your transactions. A number of reports emerged that the IRS was going to “monitor” all bank accounts over $600. A recent USA Today article correctly puts this report to bed. It’s not going to happen.

The USA article was written to discuss the tax law proposed by the Biden administration to correct a false Instagram post saying it was going into effect.

The article shows that, although there had been a proposal to monitor bank accounts, this was not approved by Congress. Therefore, without Congressional approval, the bank monitoring (for accounts with $600 or more) is not going to happen. You can thank Senator Manchin for that.

Photo by Nataliya Vaitkevich from Pexels

The New IRS $600 Rule

However, there is a new $600 IRS Rule that was announced on Jan. 12 on the IRS website. The title of the press release is this: “Taxpayers must report gig economy earnings when filing taxes.”

There is now a new reporting requirement (revised Jan. 2022) for the 1099-K, which relates to third-party payments. In the past, if you had sales of $20,000 or produced at least 200 transactions (e.g., for sales through Amazon, Shopify, Etsy, etc. or even YouTube videos, online writing, etc.) you would have received a 1099-K from the third-party.

Now the rule is that any amount over $600, as a threshold, automatically triggers a 1099-K reporting requirement by the third party to both you and the IRS.

Here is exactly what the IRS says in its new Gig Economy rule for the 1099-K:

“ What’s New. Exceptions for reporting of third-party network transactions. The reporting requirement for these transactions has changed from totals exceeding $20,000 to exceeding $600, regardless of the total number of transactions.”

As a direct result of this gig economy workers in 2022 will receive 1099-K forms from all kinds of third-party processors like PayPal, Stripe, Tipalti, UpWork, Rapyd, Uber, Lyft, etc.

The IRS is Getting Hip To Gig Economy Workers

The IRS is getting on top of the gig economy and how people are getting paid. They already have a form called the 1099-NEC (Non-Employee Compensation), which third-party providers are required to send out.

This 1099-NEC already has a $600 payment threshold requirement, so that if you receive $600 or more in payments you should receive this form from your third-party payment provider this year. By the way, both the 1099-MISC and the 1099-NEC forms have to be sent out to people by Jan. 31.

If you want to know more about the existing $600 1099-NEC and/or the new $600 threshold for 1099-K payments, I suggest you watch this YouTube video from Not Your Dad’s CPA. This guy does a very good job of describing what’s new with the reporting requirements with the IRS for gig-economy workers.

Gig economy workers should keep one thing in mind. Any amount of income, whether it is over $600 or not, still is income. All income is subject to taxation. So whether you get a 1099-K, or a 1099-NEC or 1099-MISC or not, if you made any income, even if it is not over $600 you still are subject to paying taxes on it.

One way that I keep track of this is through spreadsheets and monthly totals. That way when I do get a 1099-MISC or 1099-NEC (and now potentially a 1099-K next year), I can see if the totals reported to the IRS are the same as what I calculated from payments received.

This is Not Bank Monitoring

Keep in mind that this is a far cry from the Biden Administration proposals that wanted to monitor all bank accounts with $600 or more. That is not going to happen, at least if Congress doesn’t allow it.

However, you can see that the IRS is still actively trying to keep track of $600 or higher payments through these 1099-K, 1099-NEC, and 1099-MISC reporting requirements.

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This is not financial advice and you should not rely on my analysis to buy or sell any stock, security, or crypto, as I am not undertaking to induce you to buy or sell securities.

I am relying on the “publisher’s exclusion” in the Investment Advisers Act of 1940 to provide this information without any personalized or individualized investment advice.

You should meet with your financial advisor, CPA, or accountant to get accurate and reliable information relating to your specific situation, and not rely on anything that I have written in this article for your particular circumstance.

Mark Hake writes articles on InvestorPlace.com, Medium.com, and Newsbreak.com on stocks and cryptos and also runs the Total Yield Value Guide which you can review here.

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