IRS Lowers 1099-K Reporting Threshold for Gig Workers to $5,000

App-based delivery workers wait outside a restaurant that uses app deliveries in New York City on July 7, 2023. Spencer Platt/Getty Images

The reporting threshold for online transactions carried out by gig workers has been reduced significantly from the $20,000 limit, the IRS said on Nov. 26.

Form 1099-K is applicable to individuals who casually sell goods online or engage in gig work. Online marketplaces such as Amazon or payment apps such as PayPal are required to prepare Form 1099-K and send copies to the taxpayer and the IRS. The form details the payments a taxpayer receives from selling goods and services. In 2023, these entities had to prepare the form if a taxpayer conducted 200 transactions and collected more than $20,000.

However, this has now changed. Payment apps and online marketplaces “will be required to report transactions when the amount of total payments for those transactions is more than $5,000 in 2024; more than $2,500 in 2025; and more than $600 in calendar year 2026 and after,” the IRS said in a statement.

The American Rescue Plan Act (ARPA) passed in 2021 required that the annual reporting threshold of Form 1099-K be reduced from $20,000 to $600. Initially, the update was set to come into effect in 2022.

However, the agency pushed the measure to 2023 after criticism from payment apps. It then postponed the update to 2024 following more pushback. In November 2023, the agency said it planned to treat 2024 as a transition year to implement the ARPA requirement.

The IRS also said on Tuesday that it would not seek to impose penalties on entities if these organizations fail to withhold and pay backup withholding tax for the calendar year.

Backup withholding tax is the amount that online marketplaces and payment apps deduct from payments made to taxpayers. This amount is paid to the IRS. The withholding is done under certain situations, such as if a person fails to provide a correct taxpayer identification number to these entities.

Organizations that have “performed backup withholding for a payee during calendar year 2024 must file a Form 945 and a Form 1099-K with the IRS and furnish a copy to the payee,” the IRS said. Beginning in calendar year 2025, the IRS will charge penalties if these entities fail to withhold and pay backup withholding taxes.

Burden on Gig Workers

Lawmakers have criticized the reduction of the reporting threshold from $20,000 to $600, with Rep. Carol Miller (R-W.Va.) calling it an “unfair tax hike upon Americans and gig workers,” according to a Sept. 11 statement.

She introduced the “Saving Gig Economy Taxpayers Act” last year aimed at reverting the reporting threshold back to $20,000 and 200 transactions. In September this year, the bill passed the Ways and Means Committee.

Due to the new 1099-K policy, “companies are now once again having to take more money from their customers to satisfy the IRS,” Miller said.

“This policy is so detrimental that even the IRS knew it would be a disaster—so they’ve taken it upon themselves to single-handedly and, let me be clear, unconstitutionally, delay implementing the lower threshold each year since its passage,” she said.

Her bill will ensure that gig workers are not subjected to “unnecessary” tax burdens and IRS paperwork, she said.

The IRS clarifies that Form 1099-K is not applicable in cases where people use payment apps to send payments to their family and friends.

“Form 1099-K reports payments for goods or services and should not report personal payments like rent, dinner, travel and other gifts or reimbursements gifts, no matter the amount,” the IRS says.

“Generally, in payment apps, the default is personal payments unless the sender designates that they’re purchasing goods or services, or it is designated a business account.”

A taxpayer who engages in the sale of goods and services but does not receive any Form 1099-K may assume they would not need to report such an income while filing returns. However, the IRS stresses that “all income is taxable” under federal law except for those specifically exempted. As such, taxpayers must report all revenues from gig work and casual sales irrespective of whether they received Form 1099-K.