February 5th 2025.
According to a recent survey conducted by cloud-based tax compliance automation provider Avalara, Inc., gig workers or freelancers may be facing unexpected challenges when it comes to reporting their income and taxes. The survey, which included individuals in various industries such as online marketplace sellers, digital content creators, influencers, short-term rental hosts, and rideshare and delivery drivers, found that many gig workers are not aware of the changes in the 1099-K reporting threshold.
This change, which was voted on by Congress and reduces the reporting threshold from $20,000 to $600, has left many gig workers confused and unprepared for the upcoming tax season. In fact, the survey revealed that 61% of participants were unaware of the lowered threshold and 74% were vaguely aware of it. Only 18% correctly pointed out the correct threshold for the 2026 and 2027 tax seasons.
While the lowered threshold was initially paused, the IRS announced a phase-in process over the next three years, beginning with a new $5,000 threshold for the 2025 tax season. This will be followed by a reduction to $2,500 in 2026 and a final threshold of $600 in 2027. Kael Kelly, General Manager of Avalara, emphasized the need for gig workers to educate themselves on the 1099-K system and comply with the new regulations.
Furthermore, experts have provided tips for gig workers to avoid mistakes when filing their taxes. One important piece of advice is to accurately track income by keeping detailed records of payments and invoices from every freelance gig. This can be done through the use of spreadsheets or apps. It is also recommended to consult with a tax professional to ensure proper business deductions are being claimed and expenses are correctly categorized.
Some common mistakes that gig workers should be aware of include forgetting to report income from digital payment platforms, mixing personal and business expenses, and not setting aside enough money for taxes. As the gig economy continues to grow, it is crucial for gig workers to stay informed and educated on tax regulations in order to avoid costly mistakes and penalties.
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