Free Enterprise

IRS Implements New Rule Requiring Payment Processors to Issue 1099-K Forms for Gig Workers Earning Over $600 per Year

Beginning January 1, 2023, the IRS will require payment processors like Venmo, Cash App, and Zelle to issue a 1099-K for business transactions totaling $600 in a year.

Venmo alone boasts 52 million users in the United States, so it’s no surprise that the IRS is beginning to require payment apps to report their users’ business transactions. 

As these apps have grown in popularity, gig workers have begun using them to receive payment for the services they provide. The gig economy has grown rapidly in the past few years, with a reported 59 million workers in 2022. To add some perspective, that’s 36 percent of all US employees. 

Back in high school, a friend’s mom sold vinyl signs and decals, mostly to local schools for their sports teams. She posted her products on her Instagram and accepted Venmo and PayPal payments. 

She most likely received more than $600 in revenue within a year. But she was not an LLC, had no employees, and worked a full-time job outside of her gig.

Big corporations are not the ones using these payment apps to receive money. It’s the nail technician, the craft maker on Etsy, the hairdresser who occasionally cuts their friends’ hair, or the mom pursuing and capitalizing on a hobby. Oftentimes, they are hardly recouping the cost of the service or product they are providing to friends and neighbors.

Avoiding paying taxes on income for legitimate business ventures is not the correct answer. But I would argue that auditing gig workers who make $600 is not the solution either. The previous threshold for this rule was $20,000, which protected many people tangentially participating in the gig economy. 

The low $600 threshold seems punitive, not at all taking into account the section of the gig economy who is not making a living completely off their gig of choice. Carving out specifications or raising the threshold significantly could help ensure that tax evasion is kept at bay while protecting people like my friend’s mom.

It wouldn’t be too surprising if this pushes gig workers to request cash only as their accepted form of payment. Should we blame them? Read more about what Libertas is doing in the interest of gig workers.