Gig economy workers are now faced with a lower threshold for 1099-K income reporting to the IRS, and a new survey shows that many of them are surprised to learn that this will result in higher tax bills for them. 

The survey by Avalara, Inc. included online marketplace sellers, digital content creators and influencers, short-term rental hosts and rideshare and delivery drivers. 

The reporting status for these independent workers has been in limbo for several years since Congress voted to reduce the 1099-K reporting threshold from $20,000 to $600, thus requiring payment apps to report significantly more transactions to the IRS. 

Though the lowered threshold was delayed at the end of 2023, in November 2024, the IRS announced a three-year phase-in to the $600 threshold, beginning with a new $5000 1099-K threshold this tax year, then a follow-on reduction to $2,500 in 2026, and finally a $600 threshold in the 2027 tax season. 

While 61% of respondents claim to be knowledgeable about Form 1099-K and its purpose, an equal 61% do not know that the 1099-K reporting threshold is lower this year and subsequent tax years. In lockstep, a robust 74% of gig workers surveyed cannot identify the payment threshold above which they would be required to report income to the IRS in 2025. And for subsequent tax seasons on the road to a $600 1099-K reporting threshold, only 18% surveyed could identify the correct threshold for 2026 and the final $600 reporting threshold for the 2027 tax season. 

Survey respondents offered differing predictions for how they would fare amid the new income reporting requirements: 37% think their business will be profitable following tax season, 36% responded that they’ll likely break even, and 17% predict they’ll lose money due to the IRS changes. 

More than one-third (37%) of gig workers surveyed said this is the first year they’re receiving a 1099-K, so it’s no surprise that 21% of respondents plan to open their wallet for a tax professional for the first time. Another factor in seeking professional advice could be the number of gigs these workers are juggling: 75% of survey respondents have two or more sources of income, 45% have three or more, and 16% have four or more. Accountants and bookkeepers will be essential to helping those new to 1099-K work sort out the reporting and tax implications of multiple income sources. 

The survey also revealed how respondents plan to move forward with work choices, payment transaction strategies, and handling tax-related responsibilities following this tax season. For instance, to avoid crossing the $2,500 1099-K threshold next year, over 20% of workers are quitting one or more of their gig economy jobs and 19% are changing their earnings strategy. 15% will be using tax software for the first time. Still, another 20% plan to take on more under-the-table work, and 15% will switch to Zelle to avoid IRS reporting rules associated with platforms like PayPal and Venmo. A full 40% of those surveyed say they’ll take on one or more additional gig economy jobs. Another 16% of survey respondents say they’re leaving the gig economy altogether and pursuing different work.