The IRS Can't Figure Out How to Tax Gig Workers

The IRS is going after the gig economy, dramatically lowering the threshold for reporting income outside traditional workplaces. But if you've been keeping your side hustle off the books, the new rule probably won't be what forces you to come clean.

As of Jan. 1, Venmo and other payment apps are required to alert the IRS when a user receives more than $600 annually for selling goods or providing services. Previously, IRS notification was necessary only when there were more than 200 transactions totaling at least $20,000.

It's a lot harder to shirk tax obligations when income is reported to the IRS because it creates a "paper" trail. The way it's supposed to work now, once a business user hits the $600 limit, the payment app will send them a special tax form to fill out and also notify the IRS. Then, when the person files their taxes, the government can check to make sure they've disclosed the same amount that was reported by the payment network.

It's typically a red flag for the IRS if someone has received one of those forms but hasn't reported any additional income.

Not surprisingly, there's been a backlash against the new provision. Etsy sellers, Airbnb hosts, hair stylists and more say they're being targeted by the IRS while audit rates for the wealthiest Americans have dropped to less than 2%.

But attacks about fairness miss a much more basic fact: The rule is easy to ignore. If lawmakers and the IRS are serious about Uncle Sam getting his bite of gig economy income, they're going to have to put more teeth into it.