Be Aware of Big Changes to 1099-K Reporting Requirements
Even before the pandemic forced millions of workers into remote roles, the ranks of those working in the mushrooming gig economy had been swelling. With so many workers using online platforms to line up and execute freelance jobs, tax regulations have fallen behind. However, the IRS is making changes to update how they approach taxation for freelancers and has recently issued new regulations regarding the 1099-K filings for freelancers and those who employ them. Since many organizations have been increasing their utilization of freelancers and other app-based workforce elements, it becomes important to keep on top of changes like this. Here’s what you need to know if your workforce includes freelance workers.
The IRS is lowering the transaction threshold for 1099-K reporting 2021 as part of their efforts to streamline 1099 reporting and tax compliance. According to a US Treasury Department study, roughly 80% of gig economy workers earning less than $20,000 a year from any single source are not receiving a 1099-K form from the employer. As a result, significant numbers of these workers are under-reporting their income.
If you’re using contractors sourced through an online or e-commerce platform to deliver services to your operation, then the new reporting rules will impact your reporting. The new rules lower the payment threshold significantly from the $20,000 mark to a mere $600. So now, any freelance or gig economy worker earning more than $600 in a year from your organization must be furnished with 1099-K for reporting purposes.
This new rule is intended to help the IRS develop a clearer picture of the size and scope of the gig economy and they will likely use the perspective they gain to enact further changes to tax law.
The rule will become effective in 2022 and will impact the January 2023 filings. However, a number of states have already adopted and implemented the rule including Arkansas, Illinois, Maryland, Massachusetts, Mississippi, Missouri, New Jersey, Vermont, Virginia and Washington D.C. So, if you do business with freelancers in these states you should file your 1099-Ks accordingly so as to avoid any compliance challenges.
Expert workforce management organizations like nextSource can help you stay out of hot water by keeping you well informed of changes like this and others. If you have questions about how this new rule may affect your workforce planning and tax reporting, reach out to us today to get some guidance.