When a policy change in 2017 sharply raised the income threshold for requiring a 1099 tax form, hundreds of thousands of gig workers stopped receiving those forms. A new study finds that many of them also reported less of their income to the IRS as a result.
The research was conducted by economists at Carnegie Mellon University, Michigan State University, the University of Chicago, and the Internal Revenue Service. It was published in the Journal of Public Economics and reported by Phys.org.
Before the change, platforms were required to file a Form 1099-K for workers earning $600 or more. After the adoption of the new form for third-party network transactions, that threshold jumped to $20,000. Gig workers earning between those two amounts suddenly fell outside the reporting requirement.
The study found that for every dollar in gig payments no longer reported on a 1099 form, gig workers self-reported 17 cents less in self-employment net earnings on their own tax returns.
Researchers used state-level data from Massachusetts and Vermont, where the reporting threshold stayed at $600, and compared those workers to platform workers just across the Massachusetts border who were no longer subject to the lower threshold. This allowed them to isolate the effect of the reporting change from other factors.
Scaling up to the national level, the researchers estimated that 770,000 gig workers did not receive information returns because of the 2017 change and that $560 million in profits went unreported on income tax filings as a result.
"In 2017, as a result of a policy change, many gig workers with low to moderate earnings suddenly and unexpectedly stopped receiving a 1099 for their work," said Andrew Garin, assistant professor of economics at Carnegie Mellon's Heinz College, who led the study. "This raised the question: How did this affect what these workers report to the IRS on Tax Day?"
The findings carry weight for ongoing policy debates. Rules introduced in recent years mean that millions of additional freelancers will no longer be subject to 1099 reporting requirements.
"Policymakers are actively adjusting information reporting requirements, but there is limited evidence on how such changes affect taxpayers' behavior," said Emilie Jackson, assistant professor of economics at Michigan State University, who coauthored the study. "In the past few years, new rules mean that millions of additional freelancers will no longer be subject to 1099 reporting. Our findings offer new evidence about how these changes might affect federal revenues in the coming years."
