The new tax rules have been delayed — and nothing’s certain — so P2P will continue to be a gig economy mainstay.
And amid the uncertainty, P2P may be the go-to option for tips and for odd jobs — for the smaller transactions (by value), but perhaps not for full-scale payments for project-based work.
What is certain is that as those new rules loom, we’ll also see demand for the end-to-end tracking, payment and tax reporting solutions provided by platforms around the globe.
What’s Changing
The Internal Revenue Service has pushed off — for a year, as of this writing — a new rule would change tax reporting when receiving payment from PayPal, Venmo and other such P2P platforms.
The “lowered” $600 threshold amount at which third-party settlement organizations and services — which would apply to PayPal, Venmo, and CashApp — would have been required to report the tax year 2022 transactions on a Form 1099-K still is coming, though.
In the meantime, the “old” threshold still stands, at more than 200 transactions per year, exceeding an aggregate amount of $20,000. But by and large, the payments for work that’s not traditionally done on a 9-5 basis — cutting the grass, running a part-time beauty business, running an eCommerce business on Etsy, and so on — well, that gets a 1099.
In the case of business transactions, the platforms are required to send out the 1099 forms to the recipient and the IRS. For gig economy workers, the easiest thing to do would be to set up business accounts, which sidesteps any “co-mingling” (that’s our term) of personal and business payments.
As PYMNTS reported last year, Zelle said it does not have to declare transactions made through the payment service because it is a network that does not hold the funds. Thus far, smaller outfits have been asking to be paid via Zelle.
Nothing is Certain Yet
We’re a far cry from things being etched in stone. As recently as the end of last year, Sens. Joe Manchin, D-W.Va., and Bill Hagerty, R-Tenn., proposed an amendment that would boost the $600 reporting requirement to $10,000. In addition, the American Institute of CPAs (AICPA) has written a letter to Congressional leaders recommending the threshold be boosted to $5,000.
In the meantime, as things get worked out, we’re likely to see gig economy workers and freelancers gravitate toward platforms and FinTechs that help them manage it all.
Companies such as Tipalti offer end-to-end automation of those back-office functions. For cross-border settings, Revolut recently launched Revolut Pro, a dedicated income, payment and expense management account for freelancers, sole traders, contractors and self-employed individuals looking to manage their business funds.
Separately, PYMNTS research has found that automation of the back office (and yes, that includes tax reporting) is top of mind for the gig economy companies themselves. Of the firms surveyed, 96% of companies experienced an increase in the average number of payables processed each month during the last year, and 71% see volumes growing in the low to mid single digit percentage points.
To mangle an old O’Neill play’s title, the tax man cometh — and the rules may change.