Freelancer Tax Time Bomb: New Rules Could Trip You Up in 2024. Here's How to Prepare

Employees in a variety of businesses are increasingly getting some or all of their pay through apps. These encompass a wide range of independent and self-employed professionals, such as instructors, graphic designers, hair stylists, and retailers that sell goods on websites like Etsy, eBay, Amazon, and others. However, tax law is still catching up in terms of the most effective way to record this revenue.

The tax reporting rules for independent contractors and gig workers who are paid using applications such as Venmo, Zelle, Cash App, or PayPal will be altered for the 2024 tax year. The law will alter how you report income using 1099-K forms, but it won't reduce the amount of taxes owing.

The adjustments were postponed from when they were originally scheduled to go into effect for the 2023 tax year. April 15 is the deadline for filing taxes.

Changing Landscape for Tax Reporting

Freelancers and small company owners still only need to utilize 1099-K forms to disclose payments made to third-party apps exceeding $20,000 for the current tax year, and any amount beyond 200. However, that barrier will only be $5,000 starting in the next year, and it will ultimately drop to $600. The adjustments were postponed from when they were originally scheduled to go into effect for the 2023 tax year.

There are others in the industry who claim that the new rule will improve information collecting for freelancers and the IRS, particularly for self-employed individuals and online retailers.

Whether or not they fulfill the reporting requirements to utilize 1099-K forms, freelancers, gig workers, and online merchants are still required to pay taxes on their income. However, it may be challenging to keep track of every payment, particularly when it is made across several websites and applications. According to experts, this may result in underpayment and uncertainty.

Platforms, companies, and people will all be impacted by the inevitable transition, so it's best to start getting ready now.

Getting Ready for the New 1099-K Reporting Threshold

You should be fine if you currently maintain precise records of your freelance earnings as they come in via PayPal, Venmo, Zelle, Cash App, and other websites. The primary distinction is that these platforms will provide you with extra paperwork for each transaction. There may be extra paperwork, but this should make accurate reporting to the IRS even easier.

Currently, the IRS receives a "matching error" if a freelancer is paid by Venmo, Zelle, or CashApp and the payer submits a form to the IRS confirming the payment, but the freelancer does not report the income using the same form. The adjustment will guarantee that the IRS is paid appropriately and that taxpayers receive their refunds as agreed upon.