The Internal Revenue Service (IRS) reminded taxpayers last week to claim all income transacted on third-party apps such as Venmo, Cash App, and PayPal to the IRS for payments that exceed $600.

Prior to the American Rescue Plan being passed on March 11, 2021, small businesses were not required to claim income on third-party apps unless they made over $20,000 and received more than 200 transactions. Now, business owners who receive a payment for over $600 on third-party apps will receive a Form 1099-K, used to report the gross amount of all reportable payment transactions.

The New York Post reported that lowering the threshold on third-party payments was proposed to crack down on tax evasion and pay for the American Rescue Plan, which allocated $3.5 trillion toward climate change programs, COVID relief, child care, and education.

In order to prepare the 45% of Americans who have a side hustle, the IRS released a statement titled “Get Ready now to file your 2022 federal income tax return.”

Many people have received $600 or more as a gift or a reimbursement from friends or relatives, which, although not taxable, may still trigger a 1099-K to be issued. In such instances, the IRS advises the taxpayer to “call the issuer. The IRS cannot correct it.”

This means that taxpayers must itemize all payments on third-party platforms and document their origins.

If taxpayers do not file a 1099-K for third-party transactions, they may face an audit.

Increasingly, Americans are turning to side hustles to make ends meet or gain disposable income. Side Hustle Nation estimates that 70 million Americans have a side hustle, half of whom earn less than $100 a month.

Naturally, the lowered requirements have sparked a backlash among small business owners who receive third-party payments.

One nanny told the New York Post, “I love being freelance but a big part of why I love it is I can pocket extra money when I decide to work extra hours… If [I] have to pay a bunch of tax on it, that’s wasted labor — it would make me reconsider working weekends.”

The crackdown on small businesses will also be a burden for the IRS, which reported they still have 3.7 million unprocessed individual returns received for 2021. Alex Muresianu, a federal analyst at the Tax Foundation, doubts that the IRS will benefit enough financially in order to offset the added strain.

“The administrative burden of figuring out taxes for something like that is such a pain, some people may decide [owning a small business] is just not worth it. And I doubt the IRS is going to be making a lot of revenue on taxing people’s $10,000 side hustle,” Muresianu claimed in an interview with the New York Post.

Following the August 2022 passage of the Inflation Reduction Act, the IRS plans to hire an additional 87,000 agents by 2031, 70,000 of whom will be armed.