Huzzah! The 2021 tax season is over! That’s the good news—but there are some big changes on the horizon for next season, especially if you are participating in the gig economy and selling goods and services through online platforms.
Starting this year, online platforms like eBay, Etsy, Airbnb, Venmo, and Uber are required to send a Form 1099-K to the IRS reporting earnings over $600.
This is a huge change from the old law, which only required online selling platforms to report if individuals earned more than $20,000 and had over 200 transactions. The difference could be very expensive for gig workers and independent contractors.
The change was made quietly during the pandemic when Congress lowered the 1099-K threshold as part of the American Rescue Plan Act. Are you feeling rescued yet?
Some members of Congress are trying to fight the changes before the 2022 tax filing season begins or at least raise the threshold to $5,000 rather than $600. But this is the law for now, so we should prepare accordingly.
Here is what we know:
- Online platforms will report vendor earnings to the IRS that exceed $600.
- People selling items for less than they paid (or inherited items worth less than they were on the date of death) may not owe any taxes and would not have to submit a form to the IRS.
- Since a lot of apps like Venmo are used for business and personal reasons, online platforms will begin asking users to clarify whether payments are for friends and family, or goods and services.
- Platforms may begin withholding payments to vendors earning more than $600 until those vendors provide a Social Security number or other tax ID. To prevent people from cheating the system, only payments for goods and services might receive purchase protection.
If you are concerned about how this change might affect your cash flow and tax planning, call the office and we can revisit your balance sheet.