The Inflation Reduction Act, if passed, will allocate $80 billion to beef up the Internal Revenue Service (IRS) by hiring 87,000 workers to conduct 1.2 million more audits. Of the $80 billion, $45.6 billion of that sum will go towards “enforcement.”
According to the Congressional Budget Office (CBO), the IRS is expected to rake in $203.7 billion in revenue between 2022 and 2031. This income boost certainly won’t be from millionaires or billionaires coughing up more money. The agency is expected to audit freelancers and self-employed workers.
CBS News reports self-employed workers and 1099-K filers will be more scrutinized under the IRS’s auditing regime because they “claim deductions that they might not be entitled to.”
Lawrence Levy, president and CEO of tax resolution firm Levy and Associates, told CNBC that self-employed workers will be audited more compared to W-2 employees:
The chance of an audit may increase for self-employed taxpayers, Levy said, depending on their return. However, the odds may not change for traditional workers with an error-free filing, he said.
“The W-2 employee is much less likely to get audited than a self-employed person by far, in my opinion,” Levy said.
As I reported here at IWF in June, 1099-K filers may also be subject to more audits under the revised reporting threshold for aggregate payments:
Individuals and small businesses using third-party apps must now submit Form 1099-K whenever they accept payments exceeding $600.
This measure was adopted following the passage of the American Rescue Plan of 2021. Section 9674 of the law lowered reporting thresholds for Form 1099-K filings from “$20,000 in aggregate payments and 200 transactions” to denominations of “$600 in aggregate payments (with no minimum transaction requirement).” This went into effect on December 31, 2021.
ZipRecruiter found the hourly rate for freelancers typically falls between $19.95 to $38.22 range which, when calculated, falls well below the $200,000 yearly income threshold. According to MBO Partners, independent contractors with annual earnings exceeding $100,000 increased to 3.8 million from 3 million in 2021—a 27% bump.
As more Americans turn to the flexibility and freedom that freelancing offers, they shouldn’t be hampered by the specter of additional audits. The proposed Inflation Reduction Act will do all but lessen fears about audits for freelance workers and 1099-K filers.