Record-high
The Pew Research Center
The biggest change has been income reporting thresholds for gig workers. Prior to January 2022, if a person was paid electronically by credit card, debit card or third parties — such as PayPal, Zelle or Venmo — those payment networks would be required to issue a 1099-K when the taxpayer was paid at least $20,000 or more and had more than 200 such transactions.
But under the
It was a big change for these gig workers — a huge swath of whom are hobbyists — and a big new responsibility for tax preparers. Anyone who has ever sold some of their old toys on eBay or made a little cash creating and selling custom jewelry on Etsy can tell you that $600 in payments hardly means they have a thriving business on their hands. But under the new threshold, they'll essentially be treated as a sole proprietorship with penalties for failure to comply to boot.
The tax law change meant that essentially overnight, tax pros had to make sure their clients knew they had a burden on that income, albeit in many cases a small one. And now, thanks to a new law signed in 2022, the $600 mark will loom even larger over this tax season, because the playing field is about to be leveled for the IRS.
For years, the IRS has been tasked with taming this uncharted frontier and lacked scant resources to do so. Agents wouldn't have had the time or even the inclination to chase down an Etsy seller with $700 in unclaimed sales. But the Inflation Reduction Act was signed into law this past summer, providing the IRS a budget windfall of
Platforms like eBay see that writing on the wall and, as a result, have been quick to get vigilant on reporting. For example, once an eBay seller's sales begin to approach $600, the company puts sales payouts on hold until the seller enters their Social Security or tax ID number. The message is clear: We're not getting dinged for noncompliance, so if you want to use our platform to make some cash, get ready for a tax form.
The 2022 tax season acted almost as a soft launch for this new guidance, but in 2023, preparers will have to make sure their clients are ready for prime time. More gig economy workers are jumping into the fold every single day, so tax pros will have to clearly communicate to their clients what their tax burden is, what forms they should have, and stress why it is important. Those who don't run the risk of opening their clients and themselves to major volatility.