IRS Warns Taxpayers of Consequences for Failure to Meet Certain Tax Obligations

This week, the Internal Revenue Service issued a notice. “gig economy” Service workers and foreign income earners must report any tax obligations.

An IRS release issued Mar. Mar. “even if the income is from part-time, temporary, or side work; paid in any form, including cash, property, goods or digital assets; not reported on an information return form like a Form 1099-K, 1099-MISC, W-2, or other income statement.”

The gig economy is defined as activity where people earn income from providing on-demand goods, services, or work—and it’s often via an online platform such as an app or a website like Instacart, Lyft, DoorDash, or Uber.

The IRS announced that they would not implement a new reporting rule for online business transactions exceeding $600 until Dec. 23, 2022. In the past, the threshold for 1099-K tax form reporting was 200 transactions with a total value of $20,000. The IRS may not have noticed earnings that didn’t meet this standard, but tax laws require that people pay the required amount.

The IRS announced that the new tax-reporting rules will be in effect for tax year 2023. The American Rescue Plan was the final law to implement this rule. It was signed into effect in early 2021.

“If you’re one of the millions of gig economy workers, such as a freelancer or contractor, you may have received payments totaling $600 or more from any one of your side jobs during the tax year,” TurboTax, a tax-filing service, has released a new statement Article. “If so, the individual or company that paid you generally must supply you with Form 1099-NEC for nonemployee compensation. If you receive payments through online payment services such as PayPal, you might also receive a form 1099-K. Payers will also send these forms to the IRS to report your income.”

The IRS recommends that these workers access the IRS’s “Access to Information” section.Gig Economy Tax CenterClick here for more information.

Tips are a good idea

According to Mar.’s news release, individuals who work in restaurants or hotels as well as salons and other similar industries must also report tips. 1.

“Cash tips include those received directly from customers, electronically paid tips distributed to the employee by their employer and tips received from other employees under any tip-sharing arrangement,” The IRS stated. “All cash tips must be reported to the employer, who must include them on the employee’s Form W-2, Wage and Tax Statement.”

It added that “noncash tips”—defined as items of value like passes, tickets, or goods and commodities given to the employee—don’t have to be reported to the employer. They, however, “must be reported on a tax return,” The notice stated.

Tips that the worker did not report to the employer have to report them separately on Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to include as additional wages along with their tax return, the notice said. The employee has to pay their share of the Social Security and Medicare tax owed on the tips, it added.

“Employees don’t have to report tip amounts of less than $20 per month per employer. For larger amounts, employees must report tips to the employer by the 10th of the month following the month the tips were received,” According to the IRS

Foreign Source Income

In the latest IRS notice, it was also stated that taxpayers must report foreign source income. “regardless of where they live.” American citizens as well as resident aliens (or those who have green cards) are eligible. “must report unearned income, such as interest, dividends, and pensions from sources outside the United States unless exempt by law or a tax treaty.” They must also report earnings earned from sources other than the United States.

“They’re also subject to the same income tax filing requirements that apply to U.S. citizens or resident aliens living in the United States,” The IRS stated.

And it noted that federal law requires Americans to report their worldwide income such as earnings from  foreign trusts and foreign bank accounts. Those taxpayers may need to to complete and add Schedule B (Form 1040), Interest, and Ordinary Dividends, to their tax returns.