Taxation Issues of the Gig Economy

Question 1

What form should a gig worker use to report the income to the IRS who receives $500 for services rendered?
* Form 1040, as other income
* Form 1040, Schedule C, in the capacity of an independent contractor.
* Form 1099-NEC
* the income is not reportable because it is below the threshold amount

Answer 1

Form 1040, Schedule C, in the capacity of an independent contractor.

Question 2

Spot the correct statement with respect to a gig worker.

Answer 2

My answer:

The worker generally is a freelancer without benefits.

Question 3

We have a client who performs part-time work for company X. They receive their fee of $3,000 from PayPal. In addition, the company pays them a bonus of $700 for completing the work early. What tax forms will our client likely receive from company X?

Answer 3

My answer:
Form 1099-K from PayPal and Form 1099-NEC from the company.

Question 4

When should a 3rd party payer issue Form 1099-K to an individual in 2024?

Answer 4

My Answer:

Form 1099-K should be issued to an individual for transactions of $5,000 or more in 2024. The dollar amount was $20,000 for 2023 and prior years and technically, the dollar amount should be $600 for 2025 but we will need to see if Treasury extends the $5,000 threshold.

Question 5

Which of the following conditions must be fulfilled for a worker to be classified as an independent contractor (IC) according to the ABC test under Assembly Bill (AB5)?

• The worker is free from the control and direction of the company in connection with performing the work and under the terms of the relevant contract.
• The worker performs work that is outside the usual course of the company’s business.
• The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work being performed for the company.
• All of the above.

Answer 5

My answer

All of the above

Question 6

Final Quiz -Q1

What is the minimum payment amount that will require a person to issue a gig worker Form 1099-NEC in 2024?

Any amount over $0
$600 or more
$1,000 or more
$2,500 or more

Answer 6

My answer:

$600 or more

Question 7

Which form is required to be issued for gig transactions from a 3rd party payer?

Form 1099-K
Form 1099-MISC
Form 1099-NEC
Form W-2

Answer 7

My Answer:

Form 1099-K

Question 8

Which of the following factors related to the relationship between the worker and the company is considered by the IRS when determining if a worker is classified as an independent contractor?

• Whether the worker has a college degree.
• Whether there is a written contract outlining the terms of the work.
• Whether the worker receives annual performance reviews.
• Whether the worker is part of a labor union.

Answer 8

My Answer:

Whether there is a written contract outlining the terms of the work.

Question 9

How shall independent contractors report their income to the IRS?

• Independent contractors report their income on Form 1040 only.
• Independent contractors do not need to report their income if it is below $600.
• Independent contractors report their income on Form W-2.
• Independent contractors report income on Schedule C.

Answer 9

My Answer:

Independent contractors report income on Schedule C.

Question 10

What is the penalty to a tax preparer who understates their client’s income due to reckless conduct?

• There is no penalty on a tax preparer.
• The penalty is the greater of $1,000 or 50% of the client’s fee by the tax preparer.
• The penalty is the greater of $5,000 or 75% of the client’s fee by the tax preparer.
• The penalty is $1,000 per taxpayer.

Answer 10

My Answer:

The penalty is the greater of $5,000 or 75% of the client’s fee by the tax preparer.

Question 11

Identify the reporting requirement for an individual who receives a 1099-K and has a loss on a capital asset transaction.

• It can only be reported on Form 1040, Schedule 1.
• It can only be reported on Form 8949 and Schedule D.
• It can be reported on Form 1040, Schedule 1, or Form 8949 and Schedule D.
• The individual reports the net loss on Form 1040 as other income.

Answer 11

My answer:
It can be reported on Form 1040, Schedule 1, or Form 8949 and Schedule D.

Question 12

What is one of the categories that the IRS considers to determine if a worker is classified as an independent contractor?

• Behavioral control
• Job satisfaction
• Market demand
• Employee tenure

Answer 12

My Answer

Behavioral control

Question 13

What is one consequence a business may face if it misclassifies a worker as an independent contractor instead of an employee?

• The business may be required to pay the worker’s prior years’ employment taxes.
• The business can reduce its overall tax liability.
• The business will receive a tax refund for previous payments.
• The business will receive a tax refund for previous payments.

Question 14

What is one consequence a business may face if it misclassifies a worker as an independent contractor instead of an employee?
* The business can reduce its overall tax liability.
* The business will receive a tax refund for previous payments.
* The business will receive a tax refund for previous payments
* The business may be required to pay the worker’s prior years’ employment taxes..

Answer 14

My answer

The business may be required to pay the worker’s prior years’ employment taxes.