The agency is charging new taxes on Americans who make a side income of more than $600 from activities like online selling or freelance work.
A new IRS tax on gig workers would result in additional documentation that will create confusion among individual taxpayers as the agency does not have “centralized leadership” to deal with the expansion, according to a watchdog.
Starting this year, a new IRS rule required that third-party payment networks like PayPal, Venmo, Amazon, and Square issue Form 1099-K when a user receives more than $600 in gross sales from goods and services transactions in a single year. Earlier, the threshold of gross sales was over $20,000.
As a result, many taxpayers who never received Form 1099-Ks in the past will receive them this year, according to a Nov. 15 report by the U.S. Government Accountability Office (GAO). This could “exacerbate confusion among some taxpayers, such as gig workers, who may not understand the taxability of their payments and taxes owed.”
“For example, some of these taxpayers may not know how to calculate profit or loss and may not understand the information reported on the form. This puts them at risk of inaccurately reporting their incomes to IRS or not meeting their tax obligations.”
The IRS calculated that the new rule would result in 44 million Form 1099-Ks being filed in 2024, which is an increase of roughly 30 million. The tax agency “does not have a plan” to analyze these data to support its enforcement and outreach activities. “This limits its understanding of changes in taxpayer burden,” GAO said.
GAO also pointed to challenges facing the IRS with regard to its handling of “information returns.”
Information returns are filed by third parties like employers, businesses, banks and include Form W-2 for employee wages and Form 1099-K filed by payment networks. IRS compliance programs use these information returns to identify potential fraud and noncompliance among taxpayers.
However, “IRS lacks centralized leadership to make strategic decisions related to the use of information returns across the agency,” the GAO report stated.
“For example, IRS has not analyzed information returns comprehensively to determine if the returns’ characteristics (e.g., deadlines) meet IRS’s needs. While information returns support multiple IRS compliance programs, no office is responsible for coordinating these efforts.”
Burdensome for Americans
Commenting on the GAO report, the House Ways and Means Committee criticized Democrats for burdening everyday Americans with the new tax rule.
