In recent years, the gig economy has changed how people do business and provide services. Taxpayers must report their gig economy earnings on a tax return – whether they earned that money through a part-time, temporary or side gig. The IRS’ Gig Economy Tax Center provides information and resources to help this group of entrepreneurs and workers understand and meet their federal tax obligations.
Here are key things for individuals involved in the gig economy to remember as they get ready to file in 2023.
Gig economy income is taxable
• Taxpayers must report all income on their tax return unless excluded by law, whether they receive an information return such as a 1099 or not.
• Individuals involved in the gig economy may also be required to make quarterly estimated tax payments to pay income tax and self-employment tax, which includes Social Security and Medicare taxes. The last estimated tax payment for 2022 is due Jan. 17, 2023.
Workers report income according to their worker classification
Gig economy workers who perform services, such as driving a car for booked rides, running errands and other on demand work, must be correctly classified. Classification helps the taxpayer determine how to properly report their income.
• If they are employees, they report their wages from the Form W-2, Wage and Tax Statement.
• If they are an independent contractor, they report their income on a Schedule C, Form 1040, Profit or Loss from Business – Sole Proprietorship.
The business or the platform determines whether the individual providing the services is an employee or independent contractor. The business owners can use the worker classification page on IRS.gov for guidance on properly classifying employees and independent contractors.
Expenses related to gig economy income may be deductible
Individuals involved in the gig economy may be able to deduct expenses related to their gig income, depending on tax limits and rules.
• Taxpayers may be able to lower the amount of tax they owe by deducting certain expenses.
• It is important for taxpayers to keep records of their business expenses.
Pay the right amount of taxes throughout the year
An employer typically withholds income taxes from their employees’ pay to help cover taxes their employees owe.
Individuals involved in the gig economy have two ways to cover their taxes due:
• If they have another job where they are considered an employee, they can submit a new Form W-4, Employee’s Withholding Certificate to their employer to have more taxes withheld from their paycheck to cover the tax owed from their gig economy activity.
• They can make quarterly estimated tax payments throughout the year.
More information:
Publication 525 Taxable and Nontaxable Income
Publication 1779, Independent Contractor or Employee
WASHINGTON – The Internal Revenue Service recently completed the final corrections of tax year 2020 accounts for taxpayers who overpaid their taxes on unemployment compensation they received in 2020.
The American Rescue Plan Act of 2021, which became law in March 2021, excluded up to $10,200 in 2020 unemployment compensation from taxable income calculations (up to $10,200 for each spouse if married filing joint). The exclusion applied to individuals and married couples whose modified adjusted gross income was less than $150,000.
To ease the burden on taxpayers, the IRS took steps to review the Forms 1040 and 1040SR that were filed prior to the law’s enactment to identify taxpayers who had already reported unemployment compensation as income and were eligible for the correction. The IRS determined the correct taxable amount of unemployment compensation and tax.
Some taxpayers received refunds, while others had the overpayment applied to taxes due or other debts. In some cases, the exclusion only resulted in a reduction in their adjusted gross income. The IRS mailed a letter to these taxpayers to inform them of the corrections. Taxpayers should keep that letter with their tax records.
The IRS corrected approximately 14 million returns. This resulted in nearly 12 million refunds totaling $14.8 billion, with an average refund of $1,232.
Many of the adjustments included corrections to the:
• Earned Income Tax Credit
• Recovery Rebate Credit
• Additional Child Tax Credit
• American Opportunity Tax Credit
• Premium Tax Credit
• Advance Premium Tax Credit
If a taxpayer is eligible for the unemployment compensation exclusion and their account was not corrected by the IRS, they may need to file an amended 2020 tax return to claim the exclusion and any applicable non-refundable or refundable credits impacted by the exclusion.
Taxpayers should not file an amended return if they previously filed one claiming the exclusion. For more information about this, including eligibility requirements, taxpayers should read the 2020 Unemployment Compensation Exclusion FAQs on IRS.gov.
If they do need to amend tax year 2020 Forms 1040 and 1040-SR, taxpayers can file Form 1040-X, Amended U.S. Individual Income Tax Return, electronically with tax filing software.
Taxpayers can view their 2020 tax records in their Online Account or request that a 2020 tax account transcript be mailed to them.
This is good for touring SW’s. email or txt us if you have questions on claiming mileage over actual expenses. You can only choose one method for the life of the vehicle.
WASHINGTON — The Internal Revenue Service today issued the 2023 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2023, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
• 65.5 cents per mile driven for business use, up 3 cents from the midyear increase setting the rate for the second half of 2022.
• 22 cents per mile driven for medical or moving purposes for qualified active-duty members of the Armed Forces, consistent with the increased midyear rate set for the second half of 2022.
• 14 cents per mile driven in service of charitable organizations; the rate is set by statute and remains unchanged from 2022.
These rates apply to electric and hybrid-electric automobiles, as well as gasoline and diesel-powered vehicles.
The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, unless they are members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details see Moving Expenses for Members of the Armed Forces.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
Taxpayers can use the standard mileage rate but generally must opt to use it in the first year the car is available for business use. Then, in later years, they can choose either the standard mileage rate or actual expenses. Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.
Notice 2023-03 contains the optional 2023 standard mileage rates, as well as the maximum automobile cost used to calculate the allowance under a fixed and variable rate (FAVR) plan. In addition, the notice provides the maximum fair market value of employer-provided automobiles first made available to employees for personal use in calendar year 2023 for which employers may use the fleet-average valuation rule in or the vehicle cents-per-mile valuation rule.
WASHINGTON — The Internal Revenue Service today announced a delay in reporting thresholds for third-party settlement organizations set to take effect for the upcoming tax filing season.
As a result of this delay, third-party settlement organizations will not be required to report tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the lower, $600 threshold amount enacted as part of the American Rescue Plan of 2021.
As part of this, the IRS released guidance today outlining that calendar year 2022 will be a transition period for implementation of the lowered threshold reporting for third-party settlement organizations (TPSOs) including Venmo, PayPal and CashApp that would have generated Form 1099-Ks for taxpayers.
“The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan,” said Acting IRS Commissioner Doug O’Donnell. “To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”
The American Rescue Plan of 2021 changed the reporting threshold for TPSOs. The new threshold for business transactions is $600 per year; changed from the previous threshold of more than 200 transactions per year, exceeding an aggregate amount of $20,000. The law is not intended to track personal transactions such as sharing the cost of a car ride or meal, birthday or holiday gifts, or paying a family member or another for a household bill.
Under the law, beginning Jan. 1, 2023, a TPSO is required to report third-party network transactions paid in 2022 with any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the number of transactions. TPSOs report these transactions by providing individual payee’s an IRS Form 1099K, Payment Card and Third-Party Network Transactions.
The transition period described in Notice 2022-10, delays the reporting of transactions in excess of $600 to transactions that occur after calendar year 2022. The transition period is intended to facilitate an orderly transition for TPSO tax compliance, as well as individual payee compliance with income tax reporting. A participating payee, in the case of a third-party network transaction, is any person who accepts payment from a third-party settlement organization for a business transaction.
The change under the law is hugely important because tax compliance is higher when amounts are subject to information reporting, like the Form 1099-K. However, the IRS noted it must be managed carefully to help ensure that 1099-Ks are only issued to taxpayers who should receive them. In addition, it’s important that taxpayers understand what to do as a result of this reporting, and tax preparers and software providers have the information they need to assist taxpayers.
Additional details on the delay will be available in the near future along with additional information to help taxpayers and the industry. For taxpayers who may have already received a 1099-K as a result of the statutory changes, the IRS is working rapidly to provide instructions and clarity so that taxpayers understand what to do.
The IRS also noted that the existing 1099-K reporting threshold of $20,000 in payments from over 200 transactions will remain in effect.
A new $600 reporting threshold for IRS Form1099-K involves payment networks like Venmo, PayPal, Amazon, Square, and Cash App.
Did you get paid more than $600 in 2022 for goods or services through a third-party payment network like Venmo, PayPal, Amazon, or Square? Then, due to a changed tax reporting rule, you will most likely receive an IRS Form 1099-K from your payment network—even if you haven’t received a 1099-K in the past. That’s because the 1099-K tax reporting rule now requires third-party payment networks to send a 1099-K if those payments exceed the $600 reporting threshold. (A higher, $20,000, threshold previously triggered the Form 1099-K.)
This “$600 rule” means that more people than in the past who have side hustles, and gigs, or part-time jobs, and businesses, and are paid through networks and apps like Venmo, Amazon, Square, and PayPal, will receive a 1099-K Form in January. But it’s important to note that the new reporting threshold doesn’t change the fact that the IRS has always required taxpayers to report all taxable income, whether they receive a 1099-K form or not.
However, since this is a key tax reporting change, it’s good to have information about what IRS Form 1099-K is, and what the new threshold could mean for you.
What is a 1099-K?
Form 1099-K is basically an IRS information reporting form. The form contains information, for your tax return, about the gross amount of payment transactions that you had on a third-party payment network when that amount exceeds $600 in the previous year. Companies that are required to send a 1099-K provide a copy to you, and to the IRS.
When you receive the Form 1099-K, you will want to make sure that it matches the information that you have in your records. If there are any problems with your 1099-K (e.g., the amounts listed don’t belong to you or other information on the form is incorrect), you should contact the third-party payment network that sent the form. They might be able to issue a corrected 1099-K.
1099-K Threshold for 2022: What Triggers a 1099-K?
Previously, to receive a 1099-K from a third-party payment network, you had to exceed $20,000 in transactions for goods and services and have more than 200 business transactions in a year.
Now, because of changes made under the American Rescue Plan Act, anyone with transactions that exceed a much lower $600 threshold amount (with no minimum number of transactions) in a year will likely receive a Form 1099-K from their third-party payment network. So, for example, under the changed rule, a single transaction for goods and services, that exceeds $600, could trigger the 1099-K.
Will You Get a 1099K From Venmo, PayPal, or Cash App?
Some people are wondering if they will receive a 1099-K from Venmo, or PayPal, because of the new $600 reporting threshold. The answer is maybe. Venmo, PayPal, Amazon, Square, Cash for Business through Cash App, and other third-party payment network providers, like Stripe, are required to report payments for goods and services to the IRS on Form 1099-K when those payments exceed the $600 threshold.
However, personal transactions (e.g., personal payments to friends and family) on the payment networks including Venmo, PayPal, etc., are not considered payments for goods and services. This is because the1099-K third-party payment network reporting rule applies to payments made for goods and services. It doesn’t apply to payments made through the payment networks that were gifts, or other personal payments of money to family and friends.
For example, if you received payment through a personal Cash App account during the year, those transactions won’t be reported on a 1099-K. That’s because that personal Cash App account is designed for noncommercial use, like sending a friend money because you’re splitting the cost of a meal. But if you have a Cash for Business account with Cash App(opens in new tab), and your transactions exceed the $600 tax reporting threshold, you will likely receive a 1099-K.
If, for some reason, personal transactions from any of the third-party payment providers get reported on your Form 1099-K, contact the payment network to see if you can get a corrected form. If you can’t get a correction, your own records should show personal payments made on the network versus payments for goods and services. Good records can help support the amount of income that you claim on your tax return.
Do You Have to Report a $600 Income?
The 1099-K reporting requirement means that the 1099-K Form will go to you and to the IRS. So, the likelihood that the IRS will notice a difference on your federal income tax return between your income reporting, and the reporting on your 1099-K form, (if there are differences) is relatively high.
Also, the IRS requires taxpayers to report all taxable income, so it’s best to report your taxable income and to keep good records that substantiate that income.
If you’re worried about tax liability from your side hustle, consider whether some tax deductions and credits might help reduce your tax bill, and double check other important tax changes for the 2022 tax year.
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Wading through a pile of statements, receipts and other financial documents when it’s time to prepare a tax return can be frustrating for people who haven’t managed their records. By knowing what they need to keep and how long to keep it, people can develop a good recordkeeping system year-round and make filing their return easier.
Good recordkeeping can also help taxpayers understand their situation when they receive letters or notices from the IRS.
Good records help:
• Identify sources of income. Taxpayers may receive money or property from a variety of sources. The records can identify the sources of income and help separate business from non-business income and taxable from nontaxable income.
• Keep track of expenses. Taxpayers can use records to identify expenses for which they can claim a deduction. This will help determine whether to itemize deductions at filing. It may also help them discover potentially overlooked deductions or credits.
• Prepare tax returns. Good records help taxpayers file their tax return quickly and accurately. Throughout the year, they should add tax records to their files as they receive them to make preparing a tax return easier.
• Support items reported on tax returns. Well-organized records make it easier to prepare a tax return and help provide answers if the return is selected for examination or if the taxpayer receives an IRS notice.
In general, taxpayers should keep records for three years from the date they filed the tax return. Taxpayers should develop a system that keeps all their important information together. They can use a software program for electronic recordkeeping. They could also store paper documents in labeled folders.
Records to keep include:
• Tax-related records. This includes wage and earning statements from all employers or payers including payment apps or cards, such as Form W-2, 1099-K, 1099-Misc, 1099-NEC. Other records include interest and dividend statements from banks, certain government payments like unemployment compensation, other income documents and records of virtual currency transactions. Taxpayers should also keep receipts, canceled checks, and other documents that support income, a deduction, or a credit reported on their tax return.
• IRS letters, notices and prior year tax returns. Taxpayers should keep copies of prior year tax returns and notices or letters they receive from the IRS. These include adjustment notices when an action takes place occurs on the taxpayer’s account.
• Property records. Taxpayers should also keep records relating to property they dispose of or sell. They must keep these records to figure their basis for computing gain or loss.
• Business income and expenses. Business taxpayers should find a bookkeeping method that clearly and accurately reflects their gross income and expenses. Taxpayers who have employees must keep all employment tax records for at least four years after the tax is due or paid, whichever is later.
• Health insurance. Taxpayers should keep records of their own and their family members’ health care insurance coverage. If they’re claiming the premium tax credit, they’ll need information about any advance credit payments received through the Health Insurance Marketplace and the premiums they paid.
If you are a Sex Worker Pay attention to this: If you receive gifts, tributes, or any other payments from any cash site like cashapp, Venmo, PayPal etc you will receive a 1099-K if you received more than $600. IRS gets a copy of this form too. Don’t ignore it. If you have questions contact us We can help.
IR-2022-189, Oct. 24, 2022
WASHINGTON — The Internal Revenue Service reminds taxpayers earning income from selling goods and/or providing services that they may receive Form 1099-K, Payment Card and Third-Party Network Transactions, for payment card transactions and third-party payment network transactions of more than $600 for the year.
There is no change to the taxability of income; the only change is to the reporting rules for Form 1099-K. As before, income, including from part-time work, side jobs or the sale of goods, is still taxable. Taxpayers must report all income on their tax return unless it is excluded by law, whether they receive a Form 1099-NEC, Nonemployee Compensation; Form 1099-K; or any other information return.
The IRS emphasizes that money received through third-party payment applications from friends and relatives as personal gifts or reimbursements for personal expenses is not taxable.
The American Rescue Plan Act of 2021 (ARPA) lowered the reporting threshold for third-party networks that process payments for those doing business. Prior to 2022, Form 1099-K was issued for third party payment network transactions only if the total number of transactions exceeded 200 for the year and the aggregate amount of these transactions exceeded $20,000. Now a single transaction exceeding $600 can trigger a 1099-K.
The lower information reporting threshold and the summary of income on Form 1099-K enables taxpayers to more easily track the amounts received.
Generally, greater income reporting accuracy by taxpayers also lowers the need and likelihood of later examination.
Consider making estimated tax payment
Income taxes must generally be paid as taxpayers earn or receive income throughout the year, either through withholding or estimated tax payments.
If the amount of income tax withheld from one’s salary or pension is not enough, or if they receive other types of income, such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, they may have to make estimated tax payments.
If they are in business for themselves, individuals generally need to make estimated tax payments. Estimated tax payments are used to pay not only income tax, but other taxes as well, such as self-employment tax and alternative minimum tax.
Summer is slipping away and another school year is starting. As kids head back to the classroom, parents are ticking items off the school supply list. If they want to boost their back-to-school budgets, parents and guardians should make sure they aren’t missing out on their 2021 refunds and tax credits.
Many people don’t get their tax refund because they didn’t file a federal tax return. Some people choose not to file a tax return because they didn’t earn enough money to be required to file. Generally, they won’t receive a failure to file penalty if they are owed a refund – but they won’t receive their refund either.
A refund isn’t the only money people might be missing out on when they don’t file. If they’re eligible for tax credits, like the child tax credit and the earned income tax credit, they’re leaving that money on the table as well.
The child tax credit
The child tax credit helps families with qualifying children get a tax break. People may be able to claim the credit even if they don’t normally file a tax return.
Taxpayers qualify for the full amount of the 2021 child tax credit for each qualifying child if they meet all eligibility factors and their annual income isn’t more than:
• $150,000 if they’re married and filing a joint return, or if they’re filing as a qualifying widow or widower.
• $112,500 if they’re filing as a head of household.
• $75,000 if they’re a single filer or are married and filing a separate return.
Parents and guardians with higher incomes may be eligible to claim a partial credit. The Interactive Tax Assistant can help people check if they qualify.
The earned income tax credit
The earned income tax credit helps low- to moderate-income workers and families get a tax break. If someone qualifies, they can use the credit to reduce the taxes they owe – and maybe increase their refund.
Low- to moderate-income workers with qualifying children may be eligible to claim the earned income tax credit if certain qualifying rules apply to them. People may qualify for the EITC even if they can’t claim children on their tax return. Visit IRS.gov to learn how to claim the EITC without a qualifying child.
People who qualify for the EITC, may also qualify for other tax credits, including:
• Child tax credit and the credit for other dependents
• Child and dependent care credit
• Education credits
• Recovery rebate credit
For people who requested an IRS extension to file, the October 17, 2022, deadline may seem far away, but it’s coming up fast. Taxpayers who haven’t filed, whether they requested an extension or not, should file a complete and accurate return as soon as possible. For people who have all their paperwork in hand, filing sooner and filing electronically could help them avoid possible processing delays later.
Here are some resources and information to help taxpayers avoid getting caught up in a last-minute filing rush.
Resources for people preparing their tax return
• IRS.gov The IRS webpage has tools and resources to help taxpayers and answer FAQs.
• Online Account Access individual account information to get info from the most recently filed tax return, including adjusted gross income, Economic Impact Payments and advance child tax credit payments.
• Interactive Tax Assistant Taxpayers can enter their info to get answers for their specific tax situation. This tool can determine if an individual must file a tax return, their filing status, if they can claim a dependent, if an income type is taxable, and their eligibility to claim a credit or deduct certain expenses.
• Tax professionals Tax pros can also help taxpayers prepare their tax returns. Authorized IRS e-file providers are qualified to prepare, transmit and process e-filed returns. Taxpayers should choose a tax preparer wisely. The IRS online directory can help people find a local tax pro.
Taxpayers can file electronically for the fastest turnaround.
E-filing is fast, accurate and secure. When taxpayers choose direct deposit, their refund goes directly into their bank account. The IRS processes most e-filed returns and issues direct deposit refunds in less than 21 days.
• IRS Free File Eligible individuals can use the IRS Free File program to prepare and file their 2021 federal tax return for free. Taxpayers can choose the brand-name tax preparation software company that is best for them. Some companies even offer free state tax return preparation. Those who earned more than $73,000 have the option to use IRS Free File Fillable Forms.
• MilTax online software MilTax online software is also available for members of the military and certain veterans, regardless of income. This software is offered through the Department of Defense.
• Commercial software The software uses a question-and-answer format that makes doing taxes easier. The return is signed electronically and transmitted through IRS-approved electronic channels.
An extension to file a tax return is not an extension to pay taxes.
Taxpayers who owe taxes can review all payment options online. The IRS has options for people who can’t pay their taxes, including applying for a payment plan on IRS.gov. Here are some other things to know:
• Generally, there’s no penalty for not filing a return if due a refund, but there’s also no statute of limitations for assessing and collecting taxes due if no return has been filed.
• Interest is charged on any tax not paid by the April due date and will accrue until paid in full. Penalties will accrue for each month tax remains unpaid until maxed out at 25% of the unpaid tax.
• Submitting a tax return and paying the amount owed as soon as possible can help taxpayers avoid further interest and penalties.
Taxpayers using a professional tax preparer should make sure they have all their information readily available before their appointment. Collecting their information and getting copies of any missing documents before taxpayers sit down to prepare their return is critical to filing an accurate tax return. Having organized records and information in hand helps prevent filing errors and will likely create a smoother filing experience.
Here’s a list of information taxpayers may need. Not all information applies to all taxpayers.
• Social Security numbers of everyone listed on the tax return.
• Bank account and routing numbers for direct deposit or information to make a tax payment.
• Forms W-2 from employer(s).
• Forms 1099 from banks, issuing agencies and other payers including unemployment compensation, dividends, distributions from a pension, annuity or retirement plan.
• Form 1099-K, 1099-MISC, W-2 or other income statement for workers in the gig economy.
• Form 1099-INT for interest received.
• Other income documents and records of virtual currency transactions.
• Form 1095-A, Health Insurance Marketplace Statement.
• Letter 6419, 2021 Total Advance Child Tax Credit Payments, to reconcile advance child tax credit payments.
• Letter 6475, Your 2021 Economic Impact Payment, to determine eligibility to claim the recovery rebate credit.
• Information to support claiming other credits or deductions, such as receipts for child or dependent care, college expenses or donations.
Taxpayers can get information about their Economic Impact Payments and advance child tax credit payments through their IRS online account.
Taxpayers who don’t have their letters about their Economic Impact Payment to claim missing stimulus payments and advance child tax credit payments to claim their full child tax credit have an online option. They can log in to their IRS online account and get the information from the Tax Records tab.
For taxpayers who are married filing jointly, each spouse will need to have their own Economic Impact Payment and advance child tax credit information.
What taxpayers should do if they’re missing other documents
Taxpayers who didn’t receive a W-2 or Form 1099 should contact the employer, payer or issuing agency and request the missing documents. This also applies for those who received an incorrect W-2 or Form 1099.
If they still can’t get the forms, they can use Form 4852, Substitute for Form W-2, Wage and Tax Statement or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. If a taxpayer doesn’t receive the missing or corrected form in time to file their tax return, they can estimate the wages or payments made to them, as well as any taxes withheld. They can use Form 4852 to report this information on their federal tax return.
Find an authorized e-file provider
Taxpayers who are looking for a tax pro should use the Authorized IRS e-file Provider locator service. This is a nationwide listing is of all businesses that have been accepted to participate in the IRS e-file program. These businesses are authorized IRS e-file providers. They are qualified to prepare, transmit and process e-filed returns.