Gig Workers, Marketplaces Already Feeling the Cash App Tax Plan

The IRS’s decision to maintain the reporting threshold for payment app transactions in 2024 was welcome news to companies that send out 1099-K tax forms, but lower thresholds are coming, and many taxpayers are already being affected by them.

A Nov. 28 Avalara survey found that marketplaces anticipate sellers to leave their platforms, and a majority of both marketplace sellers and gig workers are reconsidering online selling and on-demand work.

The survey also revealed a disconnect in 1099-K readiness, with nearly all marketplaces queried believing sellers on their platform are prepared for changes, compared to only half of marketplace sellers reporting readiness to comply with the IRS’s proposed rule changes.

Starting in the 2025 filing season, e-commerce companies that now report over $20,000 in gross payments and over 200 transactions will have to send 1099-K forms to taxpayers with more than $5,000 of business transactions. Eventually, the reporting threshold will drop to $600, as required under the 2021 Covid-19 relief bill.

According to the IRS, “the casual sale of goods and services, including selling used personal items like clothing, furniture and other household items for a loss, could generate a Form 1099-K for many people, even if the seller has no tax liability from those sales.” So sending payments for items bought from your neighbors through a service like PayPal, Cash App, or Venmo may result in having to report on a Form 1099-K.

These forms are certainly going to make filing taxes more complicated during the next reporting period.

Widespread Impact

Once the threshold drops, the 1099-K form may be sent to anyone using payment apps or online marketplaces to accept payments for selling goods or providing services.

Whether it’s a small landscaping business or a proprietor of an arts and crafts store selling through an online marketplace, the new impact will be far-reaching. The survey found that 83% of marketplaces are anticipating sellers to drop from their platforms as a result of 1099-K compliance issues.

However, 64% of marketplace sellers and gig workers are considering alternatives as a result of the compliance requirements and tax implications of new 1099-K rules. Perhaps most notably, 55% of marketplace sellers and gig workers surveyed said the proposed rules would impact their decision to continue on-demand work or selling on marketplaces.

While the business effects for each side will be large, a chasm also looms between overall readiness and the new changes. The survey found that 90% of marketplaces believe third-party sellers on their platforms are prepared for the upcoming changes to Form 1099-K, but only 51% of marketplace sellers say they are prepared for the changes.

While the 2024 transition year will surely serve as a time to continue education and readiness to be compliant, it’s clear marketplaces will need to get their affairs in order in the next few months to meet new reporting requirements.

Leaning on Automation

In a Nov. 15 report about improving tax enforcement, the General Accountability Office estimated that due to a threshold change, the IRS would receive 44 million 1099-K forms in 2024. This is an increase of around 30 million from the previous year. With this massive increase in forms, both the taxpayer and tax administrator burden borders on the impossible if done manually.

As a result, marketplaces are turning to automation to ensure the new rules don’t lead to noncompliance. Nearly two-thirds of marketplace platforms surveyed said they plan to deliver 1099-K forms to sellers that meet a new threshold via automated solutions, while 42% said they will prefer to outsource form delivery to their accounting firm.

The delayed threshold reporting period recently announced by the IRS serves as both a good reminder and a wake-up call. Additional compliance obligations are coming, and it’s the taxpayer, not the tax administrator, who’s on the hook to ensure they are in compliance.

This survey data reveals the need for proactive measures on the part of all parties—marketplace sellers, on-demand workers, and online marketplaces—to determine how best to comply with the revised 1099-K digital payments threshold.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Scott Peterson is vice president of US tax policy for Avalara.

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