IRS Lowers 1099-K Reporting Threshold for Gig Workers to $5,000

The reporting threshold for online transactions carried out by gig workers has been reduced significantly from the $20,000 limit, the IRS said on Nov. 26.
The American Rescue Plan Act (ARPA) passed in 2021 required that the annual reporting threshold of Form 1099-K be reduced from $20,000 to $600. Initially, the update was set to come into effect in 2022.
However, the agency pushed the measure to 2023 after criticism from payment apps. It then postponed the update to 2024 following more pushback. In November 2023, the agency said it planned to treat 2024 as a transition year to implement the ARPA requirement.
The IRS also said on Tuesday that it would not seek to impose penalties on entities if these organizations fail to withhold and pay backup withholding tax for the calendar year.
Due to the new 1099-K policy, “companies are now once again having to take more money from their customers to satisfy the IRS,” Miller said.
“This policy is so detrimental that even the IRS knew it would be a disaster—so they’ve taken it upon themselves to single-handedly and, let me be clear, unconstitutionally, delay implementing the lower threshold each year since its passage,” she said.
Her bill will ensure that gig workers are not subjected to “unnecessary” tax burdens and IRS paperwork, she said.
The IRS clarifies that Form 1099-K is not applicable in cases where people use payment apps to send payments to their family and friends.
“Generally, in payment apps, the default is personal payments unless the sender designates that they’re purchasing goods or services, or it is designated a business account.”
A taxpayer who engages in the sale of goods and services but does not receive any Form 1099-K may assume they would not need to report such an income while filing returns. However, the IRS stresses that “all income is taxable” under federal law except for those specifically exempted. As such, taxpayers must report all revenues from gig work and casual sales irrespective of whether they received Form 1099-K.