New Tax Rules Could Mean Higher Bills for Gig Workers
Black women in the gig economy could face higher tax bills in 2025 due to new IRS rules. The 1099-K income reporting threshold is dropping from $20,000 to $5,000 in 2025 and eventually to $600 by 2027. Many gig workers are unaware of these changes, leaving them at risk of unexpected tax debt.
A survey by Avalara, Inc., a tax compliance company, found that 74% of freelancers don’t fully understand the reporting rules. This includes Black women working as digital content creators, online sellers, and rideshare drivers. Without preparation, tax season could become a financial strain for many gig workers.
What the Lower 1099-K Threshold Means for You
Previously, gig workers only had to report income if they earned at least $20,000 and had 200 transactions through digital payment platforms like PayPal, Venmo, or Cash App. The new rule changes that. Starting in 2025, platforms will issue a 1099-K form if a worker earns more than $5,000 in transactions. By 2027, the threshold will drop to just $600.
This means more Black women entrepreneurs and freelancers will receive 1099-K forms, even if they only have side gigs. If unprepared, they could face higher tax bills because they might not have set aside enough money for self-employment taxes.
Why Many Gig Workers Feel Unprepared
The survey revealed that only 18% of gig workers knew about the final $600 threshold for 2027. That lack of awareness puts independent workers at risk of tax penalties.
Kael Kelly, General Manager at Avalara, emphasized the need for freelancers to educate themselves: “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.”
Black women in the gig economy often juggle multiple jobs, family responsibilities, and financial obligations. Without the right information, tax season could bring stress and unexpected financial burdens.
Smart Ways to Stay Ahead of Tax Changes
1. Track Your Income and Expenses Accurately
One of the biggest mistakes gig workers make is not keeping proper records. Christopher Stroup, a financial expert, advises freelancers to log all their payments and expenses.
“Keeping detailed records of payments and invoices from every freelance gig is imperative,” says Stroup. Using spreadsheets or accounting apps can help avoid surprises when tax season arrives.
2. Work With a Tax Professional
Tax laws can be confusing, and many gig workers miss deductions they qualify for. Hiring a tax professional can ensure you maximize write-offs, such as home office expenses, supplies, and mileage. Stroup warns that misclassifying expenses is common: “Gig workers often miss out on deductions by incorrectly categorizing their expenses.”
3. Set Aside Money for Taxes Year-Round
Unlike traditional employees, gig workers don’t have taxes withheld from their earnings. That means setting aside a portion of each payment for taxes is critical. Forgetting to do this could result in a large tax bill or penalties at the end of the year.
