If you have a side hustle this year, you might have a higher bill than you expect when filing your tax return next year.
A new federal requirement that took effect in 2022 requires companies that offer platforms for selling goods and services — such as Etsy and Airbnb — to issue IRS Form 1099-K to anyone who received more than $600 per year via those platforms, Bloomberg reports.
The companies also must send a copy of the form to the IRS.
Form 1099-K shows a gig economy platform user’s total transactions through such a platform.
In previous years, platforms were required to issue Form 1099-K only if a platform user made more than 200 transactions and received payments totaling more than $20,000 in a year. By contrast, the new requirement, a provision of the American Rescue Plan Act of 2021, applies no matter how few transactions a gig worker engages in.
It is important to note that the new requirement does not really change anything. Generally, income from gig work is taxable — and has been since well before the American Rescue Plan Act was signed into federal law.
However, some gig workers may have avoided paying these taxes in the past, knowing they were unlikely to get caught if the IRS was not receiving reports about their gig income.
Despite that gig income has been taxable since prior to the new requirement, Bloomberg reports that many gig workers who know of the requirement are expressing unhappiness with it. As the publication reports, one worker tweeted, “So we say tax the rich and they decide to tax side hustles.”
Even some small-business experts are noting that the new requirement is much more likely to hurt average entrepreneurs than well-heeled business operators.
Sandra O’Neill, a tax attorney and partner at Bowditch & Dewey, told Bloomberg that gig workers who are not careful could end up facing the wrath of the IRS:
“Maybe it’s a boon to the IRS, but it’s not coming from the billionaires — it’s coming from the smaller businesses. It’s much harder to go after the billionaires. It’s much harder to go after Amazon. If you have someone who makes a mistake — a small business — it’s very easy to go after them.”
As we have reported, estimates suggest the new requirement might result in an extra $8.4 billion in tax revenue for the federal government through the 2031 fiscal year.