Understanding 1099-K Forms for Freelancers in 2021

If you worked in a freelance capacity last year, you may have a tough time reporting your income to the IRS.

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Key points

• Freelance workers must report all of their income to the IRS.
• If you got paid through a third party, you may not get a tax form to simplify that process.

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There are numerous benefits to getting a side hustle. Not only can a second gig help you pad your savings and pay off debt, but it could also reduce the stress that comes with having to tackle bills.

While some side hustles allow you to join a company's payroll (such as if you work for a retail chain on evenings and weekends), others might have you work on a freelance basis. In that case, taxes aren't taken out of your wages, so it's on you to report your income and pay the IRS its share.

Some freelancers are paid by their clients directly. But you may have been paid for your work last year through a third-party platform like Upwork. If that's the case, you may, unfortunately, run into a bit of a snag when you go to file your taxes this year.

Have you been keeping track of your payments?

Freelancers who get paid from companies directly will generally receive a 1099 form summarizing that income as long as it totals $600 or more. But third-party platforms don't send out 1099-K forms (which summarize third-party payments for the year) automatically.

If you got paid through a third-party platform last year, you won't receive a tax form in the mail unless you meet these criteria:

• Your earnings exceeded $20,000
• You were paid in more than 200 separate transactions

Let's say you earned $20,000 last year, but you were paid in 20 installments of $1,000 each through a third-party platform. That means you won't have a tax form coming your way. Rather, you'll need to check your records to see how much you earned and report that total to the IRS.

Now the good news is that many third-party payment platforms allow you to pull an earnings summary when you log into your account. In Upwork, for example, you can simply access your transaction history for 2021 if you're not getting a 1099-K and use that information to complete your tax return. You can also check your bank account statements and tally up the payments you received.

But still, that's not as convenient as getting a simple tax form. If you freelanced as a side hustle, you may have some digging and number-crunching to do.

Last year, The Ascent conducted a survey and found the average man earned $8,948 per year from a side hustle, while the average woman earned $6,085. Earnings that fall in line with these averages won't qualify for a 1099-K for 2021.

Things are changing for 2022

While you'll need to have earned more than $20,000 across over 200 transactions to get a 1099-K for your 2021 payments, that rule is changing for 2022. Effective this year, third-party payment platforms will have to issue a 1099-K once earnings for the year reach the $600 mark, regardless of how many transactions that entails. So while you may have a bit of a tax headache to deal with this year, next year's filing may be a lot smoother.