Do you have a side hustle? Are you a reseller? Do you own a craft business? Are you part of the gig economy? If so, you should ensure you are complying with IRS regulations and reporting all your income.
Side hustles have become more popular and profitable than ever before. From 2020 to 2021 alone, the percentage of side hustlers making over $1,500 per month has doubled. Today, up to 45% of all Americans are side hustlers, with that number reaching as high as 49% for workers under age 34.
The IRS has noticed the uptick in transactions occurring from all this side hustling or “other income” as they call it. Primarily from people selling personal items, arts/crafts, refurbished items, and reselling in general (think found items, thrift store goods, and estate sale finds). Few buyers carry cash and most sellers like to recieve the money up front and electronically (Zelle, PayPal, Square, Stripe, Venmo, Cash App, and others). To track all this money floating around the IRS is requiring these third party settlement companies to file a form 1099K reporting your “earnings”.
From the IRS FAQ published on 12/28/2022:
Q. If I have a holiday craft business, will I receive a Form 1099-K?
A. You may receive a Form 1099-K depending on the type of transactions.
If you accept payment cards (for example, credit card or debit cards) as a form of payment for goods you sell or services you provide, you will receive a Form 1099-K for the gross amount of the payments made to you through the use of a payment card during the calendar year. This reporting requirement has not changed, and there is no minimum reporting threshold for these payments to trigger a reporting requirement.
Further, for calendar years after 2021, if you accept payments from a third party settlement organization, you may receive Form 1099-K from that organization. A third party settlement organization connects the parties together (for example, an internet sales site). You will receive a Form 1099-K if you accepted payments from a third party settlement organization where,
- the total number of your transactions exceeded 200, and
- the aggregate amount of payments you received with respect to any participating payee exceeded $20,000 in the calendar year.
Note: The American Rescue Plan Act lowered the threshold to trigger a reporting requirement on a Form 1099-K from more than $20,000 to more than $600 (regardless of the number of transactions). The IRS issued Notice 2023-10, which temporarily delays the enforcement of the lowered reporting requirement. However, you may receive a Form 1099-K in error at the lower threshold, despite Notice 2023-10.
BOTTOM LINE: Track your sales, track your expenses, and pay Ceaser his due.
Sources: IRS FAQ published 12/28/2022; Zippia – 19 must-know side hustle statistics.