Gig Workers May Be Unprepared For 2025 Tax Season

Prepare yourself!

A new survey found that gig workers, or freelancers, aren’t prepared for the lower threshold for 1099-K income reporting, which could result in a higher tax bill, CPA Practice Advisor reports.

Provided by cloud-based tax compliance automation provider Avalara, Inc., the survey featured participants in industries including online marketplace sellers, digital content creators, influencers, short-term rental hosts, and rideshare and delivery drivers. With the reporting status for gig workers being up in the air since Congress voted to reduce the 1099-K reporting threshold from $20,000 to $600, the results of workers unaware of the new requirement were eye-opening.

The percentage of those knowledgeable about the lower threshold Form 1099-K versus those who don’t know came out equal at 61%. Seventy-four percent of freelancers were vaguely unaware of the payment threshold that they would be required to report income to the IRS in 2025. For those with a $600 1099-K reporting threshold, only 18% of participants pointed out the correct threshold for 2026 and the final $600 reporting threshold for the 2027 tax season.

The lowered threshold was paused toward the end of 2023, but in November 2024, the IRS announced a phase-in over the next three years to the $600 threshold, beginning with a new $5,000 1099-K threshold during the 2025 tax season. The agency is also adding a follow-on reduction to $2,500 in 2026 and a $600 threshold in 2027.

Avalara General Manager Kael Kelly said the survey showed how much gig workers need to educate themselves on the 1099-K system at a basic level. “Our survey data reveals the urgent need for basic knowledge and orderly direction on the part of gig economy workers to determine how best to comply with the lowered 1099-K digital payments threshold. This scrappy segment of our economy demonstrates a DIY drive to create a living from engaging in multiple jobs, non-traditional work, and sometimes essential services that support how consumers want to buy and receive goods and services -– and they’re now faced with the additional challenge of sorting out new, last-minute tax regulations and reporting requirements,” Kelly said.

“Businesses of all sizes, including independent workers, need a fast, robust, easy, and affordable way to e-file 1099 forms, and that capability is within reach through modern cloud software.”

Experts have provided new ways for gig workers to avoid mistakes when filing their taxes with the new changes. One way is accurately tracking income, according to Go Banking Rates. Silicon Beach Financial owner Christopher Stroup says keeping detailed records of payments and invoices from every freelance gig is imperative. Spreadsheets and apps are useful to log income in order to stay compliant and avoid penalties.

Stroup also recommended engaging with a tax professional to make sure gig workers are claiming the proper business deductions, as it is common for business expenses to be misclassified. “Gig workers often miss out on deductions by incorrectly categorizing their expenses,” he said.

“You’ll want to ensure that your expenses, like supplies, home office use, and vehicle mileage, are tied to your business.

Forgetting digital payment platforms, mixing personal and business expenses, and failing to set aside enough money are other common mistakes tax professionals push gig workers to avoid.