It’s mandatory now: You must report your Fiverr income to the IRS
Nov 16
Or…”Area Woman Makes An Extra $7,300 and Pays Taxes on It”
This just in from CNET, who apparently just woke up and realized that for the last three years people have been making money on Fiverr.
To learn more about this $5 economy, we met up with Bay Area-based Kristin Pedderson, a full-time singer-songwriter and now, a top-rated seller on Fiverr. While music is her passion, she supplements her income by writing $5, $10, or $15 press releases. “I love writing and I love words, and it comes easy for me, and so I offer 150 words for $5. If they want more words, for instance 300, they can pay two Fiverrs.” She shared her net income from these mini gigs: $7,321.
That $7,300 is over two years but couldn’t you use an additional $3,650 a year? We know we could. We would love to be able to write “couldn’t you use an additional tax-free $3,650 a year” but if you live in the U.S. you are required to report this income. Will the IRS know if you don’t? Possibly. It may depend on how much you make from all online sources through PayPal.
Starting in 2011, all U.S. payment providers (that includes PayPal) are required to submit to you and the IRS a Form 1099-K when the payments you receive exceed both of these milestones in a calendar year:
$20,000 in gross payment volume for goods and services, and
200 payments
This rule was initially formulated to catch eBay sellers who weren’t reporting their income from sales but it can catch service providers as well.
So are you okay if you make less than $20,000 a year, paid through PayPal? Nope! You are still required by law to report this income, though it may be harder for the IRS to check on you.
Since there’s no withholding for Fiverr payments as there would be if you had a traditional employer, Fiverr sellers should strongly consider putting aside money for quarterly estimated tax payments. It sometimes takes the IRS a few years to catch up on changes, but you can be sure they’ll be coming after Fiverr’s high earners.
Check with your tax professional.
The bad news is that even with self-employment and online income you still have to pay Uncle Sam. The good news is there are literally hundreds of deductions you may be able to take. Check out Bernie Kamoroff’s 475 Tax Deductions for Businesses and Self-Employed Individuals: An A-to-Z Guide to Hundreds of Tax Write-Offs
As a former tax accountant, truth is you are always required to report income from other “entrepreneurial” activities including garage sales, ebay, and yes, services like Fiverr. Just take a look at the first page of the 1040 form, look at line item 21 and you’ll see that the IRS politely asks you to add “Other Income” and indicate the type earned.
I guess they have gotten smarter and realized that people are not going to voluntarily increase their taxable earnings reported, so they have (rightfully) exercised their legal clout to require payment providers to gather social security information from users in order to lawfully report all earnings.
The days of flying under the radar are gone! If you’re making less than minimum wage on side earnings, I wouldn’t worry too much on the impact on your tax bill. If you are making a large sum of money (I personally wouldn’t complain if I earned $3,650/year on Fiverr alone), just look at it this way: even after tax, that’s money you didn’t have before!