The IRS has been gradually tightening rules around gig economy work and side income in recent years, and 2026 is shaping up to be another year of important changes. With millions of Americans earning extra money through platforms like Uber, DoorDash, Lyft, Etsy, and Upwork, the federal government is focusing on making sure all taxable income is properly reported.
A major update for 2026 involves the reporting threshold for Form 1099-K, which payment processors and third-party apps use to report transactions. This change directly impacts gig workers, freelancers, and even people who occasionally sell items online.
Understanding these new rules is crucial to avoiding unexpected tax bills, penalties, or delays in refunds.
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The New 1099-K Reporting Threshold
In previous years, payment platforms like PayPal, Venmo, Cash App, and gig apps only issued Form 1099-K if you had more than 200 transactions and $20,000 in payments in a single year.
Starting in 2026, the threshold is officially lowered to:
- $5,000 in total payments (regardless of the number of transactions)
This means if you earn at least $5,000 through a third-party payment app in 2026, you will receive a 1099-K form from that platform, and the IRS will also receive a copy.
This rule affects:
- Gig workers (Uber, Lyft, DoorDash, Instacart, etc.)
- Freelancers and contractors (graphic design, consulting, programming, writing)
- Online sellers (Etsy, eBay, Poshmark, Facebook Marketplace)
- Anyone using payment apps like Venmo, PayPal, or Cash App for business-related payments
What Counts as Taxable Income?
The IRS considers nearly all money earned as taxable income, including:
- Side jobs and contract work
- Tips received through apps
- Online product sales, if you sold items for more than you originally paid
- Hobby income if it becomes regular and profit-driven
What is not taxable:
- Reimbursements (splitting dinner with friends on Venmo)
- Personal gifts or transfers between family members
- Selling personal items at a loss (for example, selling used clothes for less than you paid)
Self-Employment Taxes for Gig Workers
If you earn $400 or more from freelance or gig work, you must file a tax return and pay self-employment taxes (Social Security and Medicare contributions).
In 2026, the self-employment tax rate remains at 15.3%:
- 12.4% for Social Security
- 2.9% for Medicare
You may also owe income tax on top of that, depending on your tax bracket.
Deductions and Write-Offs for Freelancers
One advantage for freelancers and gig workers is the ability to deduct business-related expenses. Common deductions include:
- Mileage or vehicle expenses (for rideshare drivers)
- Home office deduction (if you use a dedicated space for work)
- Supplies, tools, or software subscriptions
- Cell phone and internet bills (portion used for work)
- Marketing and advertising costs
Keeping detailed records of your expenses can reduce your taxable income and save you money.
Quarterly Estimated Taxes
If you expect to owe more than $1,000 in taxes, you may need to pay quarterly estimated taxes. These payments are due in April, June, September, and January of the following year.
Failing to pay estimated taxes can result in penalties, even if you pay your full amount at tax time. Many freelancers set aside 20–30% of each paycheck to cover federal and state taxes.
Why These Rules Matter in 2026
The IRS is modernizing its systems to track more digital payments and ensure compliance. With the lower threshold for 1099-K forms, millions more taxpayers will receive reporting documents they may not have received in previous years.
This doesn’t change what income is taxable—it only improves how the IRS tracks it. However, many taxpayers who previously flew under the radar may now be flagged if they fail to report earnings.
Frequently Asked Questions (FAQs)
1. Will I get a 1099-K if I only made $3,000 on PayPal in 2026?
No. The threshold is $5,000. However, you are still legally required to report that $3,000 as income even if you don’t receive a 1099-K.
2. Can I deduct mileage for food delivery work?
Yes. Gig workers can deduct standard mileage rates or actual vehicle expenses (gas, maintenance, depreciation). For 2026, the IRS mileage rate will be updated in January.
3. Do hobby sales count as taxable income?
If you occasionally sell personal items at a loss (like used furniture or clothes), it’s not taxable. But if you regularly sell items for profit, the IRS considers it income.
4. How do I separate personal and business transactions on apps like Venmo?
It’s best to set up a separate business account for payments related to gig or freelance work to keep records clear and avoid confusion.
5. Will this rule increase my taxes?
Not necessarily. The rule doesn’t change tax law—it just increases reporting. If you were already reporting your income correctly, your tax bill won’t change.