NEW YORK – The IRS reminds taxpayers of their potential tax and reporting obligations on sharing economy and service industry income, digital asset transactions, and foreign sources or possession of certain foreign assets .
The information available at IRS.gov and the instructions for Form 1040(SP) and Form 1040-SR(SP) can help you understand and comply with these reporting and tax filing requirements.
Profits from the sharing economy are taxable
In general, income from the sharing economy is taxable and must be reported to the IRS on tax returns.
The sharing economy is an activity in which people earn income by providing on-demand labor, services, or goods, such as selling goods online, driving a car to make deliveries, or renting of a good. Often this is done through a digital platform such as an app or website.
Taxpayers must report income from the sharing economy on a tax return, even if the income:
- They come from part-time, temporary or additional work.
- Paid in any form, including cash, goods, goods, or digital assets.
- They are not reported on an information return, such as a 1099-K, 1099-MISC, W-2, or other income statement.
For more information on the sharing economy, see the Sharing Economy Tax Help Center.
Tips from the service sector are also taxable
People who work in restaurants, beauty salons, hotels, and similar industries often receive tips for the customer service they provide. Tips are often taxable income and it is important that people who work in these fields understand the details of how to report tips.
Tips are optional cash or non-cash payments that customers make to employees.
- Cash tips include tips received directly from customers, tips paid electronically distributed to the employee by their employer, and tips received from other employees under any tip-sharing arrangement. All cash tips must be reported to the employer, who must include them on Form W-2, Employee Wage and Tax Return.
- Non-cash tips are valuable tips received other than in cash, such as: tickets, passes or other goods or items given to the employee by a customer. Non-cash tips are not reported to the employer, but must be reported on a tax return.
- Any tips that the employee did not report to the employer must be reported separately on Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to be included as additional pay in your tax return. The employee must also pay their share of the social security and health insurance contributions due on these tips.
Employees are not required to report tip amounts less than $20 per month per employer. For larger amounts, employees must report the tips to the employer no later than the 10th day of the month following the month in which the tips were received.
The employee may use Form 4070, Employee Tip Report to Employer, available in Publication 1244, Employee Daily Tip Log and Report to Employer, a form provided by the employer, or another electronic system used by his employer.
For more information on how to report tips, see How to record and report tips.
Understand digital asset reporting and tax requirements
The IRS reminds taxpayers that there is a question at the top of Forms 1040 and 1040-SR about digital asset transactions. All taxpayers completing these forms must check the box indicating “yes” or “no”. If a person disposed of a digital asset that was held as capital property through a sale, trade, or transfer, they should check “Yes” and use Form 8949, Sales and Others capital provisions, to calculate your capital gain or loss, and report it on Schedule D (Form 1040), Capital Gains and Losses. , or on Form 709, United States Gift (and Skipping Transfer) Tax Return, for gifts. Examples of transactions involving digital assets:
- A sale of digital assets. The receipt of digital assets in payment for goods or services provided. The receipt or transfer of digital assets for free (without any consideration) that does not constitute a bona fide gift. Receipt of new assets. digital assets resulting from mining and investment activities The receipt of new digital assets as a result of a hard fork An exchange of digital assets for goods, goods or services An exchange of digital assets for one or more other digital assets. Any other disposition of an economic interest in digital assets.
If individuals received digital assets as compensation for services or gave away digital assets that they were to sell to customers in the course of a trade or business, they should report the income as they would for any other income of the same type (for example, W-2 wages on Form 1040 or 1040-SR, line 1, or inventory or services on Schedule C).
You can find more information about digital assets in the Instructions for Forms 1040 and 1040-SR and on the page digital assets from the IRS.
Foreign source income report
A U.S. citizen’s or resident alien’s worldwide income is generally subject to the country’s income tax, regardless of where they reside. They are also subject to the same income tax reporting requirements that apply to US citizens or resident aliens living in the United States.
U.S. citizens and resident aliens must report unearned income, such as interest, dividends, and pensions, from sources outside the U.S., unless exempt by law or tax treaty . They must also report earned income, such as wages and tips, from sources outside the United States.
A tax reporting requirement generally applies even if a taxpayer qualifies for tax benefits, such as the foreign-earned income exclusion or the foreign tax credit, that significantly reduce or eliminate U.S. tax at pay. These tax benefits are only available if an eligible taxpayer files a US tax return.
A taxpayer is entitled to an automatic two-month extension until June 15 if their tax address and residence are outside the United States and Puerto Rico. Even if an extension is permitted, the taxpayer will still be liable to pay interest on any tax not paid by the normal due date of April 18, 2023.
Those serving in the military outside of the United States and Puerto Rico on their usual tax return due date are also eligible for the extension until June 15. The IRS recommends attaching a statement if either of these two situations apply. Read more information in the Instructions for Formula 1040 and Formula 1040-SR, Publicación 54, Guía tributaria para ciudadanos estadounidenses y extranjeros residentes en el extranjero (en inglés) y Publicación 519, Guía tributaria de EE. UU. para extranjeros (in English).
Reporting requirements for foreign accounts and holdings
Federal law requires U.S. citizens and resident aliens to report worldwide income, including income from foreign banks, trusts, and other financial accounts. In most cases, affected taxpayers should complete and attach Schedule B (Form 1040), Ordinary Interest and Dividends, to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank accounts and securities accounts, and generally requires U.S. citizens to declare the country in which each account is located.
In addition, some taxpayers may also be required to complete and attach Form 8938, Foreign Financial Assets Declaration, to their return. Generally, U.S. citizens, resident aliens, and certain nonresident aliens must report specific foreign financial assets on this form if the total value of those assets exceeds certain thresholds.
In addition to reporting specific foreign financial assets on their tax return, U.S. persons with an interest, signature, or other authority over foreign financial accounts whose total value exceeds $10,000 at any time in 2022 must file through electronically to the Crime Enforcement Network Treasury Department of Finance (FinCEN) Form 114, Foreign Bank and Financial Account Report (FBAR). Because of this threshold, the IRS encourages US individuals with even relatively small offshore assets to check whether this filing requirement applies to them. The form is only available on the BSA electronic filing system website.
The deadline to file the Foreign Bank and Financial Accounts Annual Report (FBAR) is April 15, 2023. FinCEN grants U.S. persons who do not meet the original deadline an automatic extension until April 15, 2023 to file the FBAR. It is not necessary to request this extension. See the FinCEN website for more information.