It’s mandatory now: You must report your Fiverr income to the IRS
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
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