Moneymaking Basics: US taxes and Mechanical Turkers

| December 13, 2012; updated June 6, 2013
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There are at least a couple of different dollar-amount thresholds that US Turkers wonder about, and the end of the year seems like a good time to try and clear up some confusion about them.

(This is a general overview only. I am not a tax advisor, and I am not providing, or intending to provide,  individual tax advice. Please consult your personal tax expert for assistance with your individual tax situation.)

The $600 threshold

Some requesters on Mechanical Turk are known to cut off any Turker who gets close to earning $600 a year from them. This is because at the $600 mark, the requester has to fill out paperwork that year with Uncle Sam, to formally report those payments to you. Most requesters who block Turkers for this reason make a point of reinstating them after the first of the year, letting them begin the ascent to almost-$600 all over again.

(In case you’re wondering, yes, any Mechanical Turk requester is perfectly within their rights to block a given Turker from doing more work that year, and for any reason at all. Not wanting to file extra tax paperwork is totally acceptable as a reason. The nature of Turking is that there is no job security, so it’s wise for any Turker to keep this in mind.)

The good news is, none of the Turk companies I discuss in the transcription ebook does this, at least not currently. They’ll all let you get beyond $600, every year, and will just send Uncle Sam a tax-reporting form to notify them that this has happened. You get a copy too (it’s a 1099 form).

Does this mean that you don’t need to report Turking income that is less than $600 a year with any specific requester? Nope. See the “What those two thresholds mean for you” section for details.

The $20,000/200-transaction threshold

Requesters (whether individual or corporate) are concerned about that $600 mark, but Amazon Payments has a different threshold at which they must report. They must file a form with the IRS (and here again, you get a copy too—it’s the 1099K form) when they process at least 200 individual transactions for you during the year, if the total of all those transactions is $20,000 or more.

This one caused some special confusion among Turkers in the last month, because Amazon Payments sent some Turkers a notice about this obligation. However, that notice was purely informational, to let Turkers know that Amazon Payments is abiding by that rule. It was not an indication that any individual Turker’s tax obligations had been changed.

So, how about this threshold? Does whether you meet this one affect whether you have to report your Turking income? Nope. And by the way, this threshold also has no effect on the $600 threshold I mentioned earlier. Let’s clear all this up next.

What those two thresholds mean for you

The point of those thresholds is that in the world of Mechanical Turk, requesters, Amazon Payments, and you all have separate reporting requirements with the IRS. Requesters have an IRS obligation to specify whenever they pay at least $600 to a single Turker. Amazon Payments has an IRS obligation to report whenever they process 200 or more transactions into an individual Turker’s account, if those transactions total $20,000 for the year.

Finally, as a completely separate matter, you have your own IRS obligation to report your annual income from all sources.

My point here is that you don’t really even need to think about whether you met the $600 threshold (that’s a requester’s problem) nor do you need to think about whether you met the $20,000/200-transaction threshold (that’s Amazon Payments’ problem). The thing is, if you were paid money, it’s your obligation to settle with the IRS on it, whether or not the requester or Amazon Payments actually manages to get you a form on it. Yep, even if forms from Amazon Payments or requesters get lost in the mail on their way to you, you still have your own obligation to the IRS, and it is unchanged by the fact that you didn’t get those folks’ paperwork.

So now what? Well, if you’re wondering whether you personally have to file, the IRS has a handy interactive interview for that. You also may want to look at this Web page from the Social Security Administration; Social Security taxes are part of income tax, and that page does a pretty good job of explaining individual tax filing requirements.

Most important, though, once 2012 closes, go to your tax advisor with all of your own records about the money that you earned this year. You and they need to figure out together what income you’re going to claim at tax-filing time. Unless you’re also a requester, though, at least now you know that your primary concern isn’t going to be with those $600 and $20,000 thresholds. They are not designed to have any effect on whether you file or how much you should report or pay.

As with all material on my public site, the Moneymaking Basics series covers very basic strategy issues and misconceptions not detailed in the transcription help ebook. It spotlights specific issues and questions that new transcribers may have for setting themselves up to work smart. As always, I love your comments, so if you have any thoughts on how these could be more useful to you, let me know!

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Comments (4)

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  1. Jane Cassidy says:

    One thing many people who begin working as contractors don’t realize is that we are obligated to pay estimated taxes to both the IRS and our state 4 times a year. If you leave it to the end of the year you may be charged a penalty.

    • Amy Marre says:

      Hi, Jane,

      Thanks for your comment! Yes, very true, although states vary widely in terms of which income levels have to pay any estimated taxes at all. Also, the IRS only requires you to pay estimated taxes if your end-of-year tax balance owed is going to be a certain amount.

      That last bit means that some people/households have an alternative: they can raise their personal or household withholding from any regular paychecks they get (from an employer) to cover their self-employment taxes, too. If that can be done, then there are no quarterly payments that must be made separately.

      Nevertheless, your comment is valid. The IRS does expect self-employment tax owed to be paid quarterly, and if you owe beyond a certain amount at the end of the year and didn’t already pay it quarterly, they charge penalties. (There are some exceptions that allow you to avoid this penalty. Here’s the IRS documentation on those.)

      Point of interest: it isn’t considered tax evasion to owe a lump sum of self-employment tax at the end of the year. It’s considered tax underpayment because you failed to pay on time for each quarter. Unlike evasion, this is not a crime. As long as you do pay what you owe for the previous year by the following April 15, along with the monetary penalties for the underpayment, then you are not on the IRS’ bad side. Penalties for this type of underpayment, which also include interest, have generally been in the mid-single-digit percentages (so, around 5% on top of the total tax you owe) during the last decade.

      Once again, everyone, please check with your tax advisor about your personal situation and for any number-crunching you need.

  2. chris says:

    The email states:

    Dear Amazon Mechanical Turk Worker,

    The IRS published new regulations under section 6050W. As a result of this change, Amazon Payments, as the third party payment network provider for Mechanical Turk transactions, is responsible for reporting transactions that meet the IRS thresholds via Form 1099-K, this reporting includes Worker earnings. As a result of this change, Mechanical Turk will no longer provide the Mechanical Turk tax report to Requesters.

    Therefore the 600 threshold means absolutely nothing to individual requesters anymore therefore they have no personal information on you to give you any kind of tax form, the only form you will receive if you receive any is from amazon if you meet the 1099k 20,000/200 transactions, you might want to clear that up in your post instead of confusing users with the 600 threshold because that means nothing to a requester this tax season.

    • Amy Marre says:

      Hi, Chris,

      Taxes are confusing, indeed. For example, the main point of my post was that neither the $600 nor the $25,000/200 thresholds has anything to do with how a Turker files their taxes—not now, and not before 6050W came along.

      I’m going to let my mention of the $600 threshold stand, for two reasons. First, it’s inaccurate that the $600 threshold is no longer meaningful to individual requesters. Under $600, they still have no obligation to federally report their specific payments to an individual Turker. Because of this, it’s clear that even this year, certain requesters (Real Estate Research, for example) are continuing to adhere to the $600 threshold—that is, not allowing individual Turkers to make enough money to surpass it.

      It is a major purpose of my post to let my readers know that this limiting is not something that the major transcription requesters are doing. Nevertheless, the $600 is still considered quite significant by some requesters and may be significant to Turkers doing nontranscription work.

      The thing is, you can cite tax regulations to requesters all day, but if they’re still adhering to old rules, it hardly matters. (You can’t fault them for being extra careful, either; it’s true that the IRS has not made it totally clear how all this is supposed to work, so some requesters are probably just practicing CYA.)

      Second, I believe you’re oversimplifying the tax regulations, so I double-checked this with my friendly local tax preparer and by reading through the tax code myself. Here’s the thing: every company or individual that hires outside contractors (all Turkers are considered contractors) is still responsible for filing a 1099 whenever they pay any single contractor $600 or more in a year. This threshold is not changed by the additional threshold and new regulations; it absolutely still exists.

      What is changed for Turk requesters specifically is that MTurk payments happen to be made through Amazon Payments. This makes those payments a special case. Officially, all Turk requesters still have the obligation to report—but because the government does not want duplicate reporting, if everything that a requester pays is through Amazon Payments, then it’s Amazon Payments that has the burden to make the report. Still, any Turker that also has a relationship with a requester outside of Mechanical Turk needs to know that the requester must report those non-Turk payments on a 1099, and in calculating whether they need to make that report, the requester will need to take into account how much they paid the worker for MTurk tasks, too. Because again, the $600 threshold still exists.

      (Having a relationship with a requester outside of Turk is not as shady as it sounds; HubPages, which has just recently become a requester, is a good example.)

      So, granted, the second reason is convoluted. But my point with both reasons is that not only does the $600 threshold still exist, but certain requesters are still sticking to it. My post was intended to cover all those bases; if I’d left the $600 out, I think I’d be getting opposite comments to yours, asking why I didn’t mention it!

      So, thanks for commenting and for providing a great reason to clear that up! (By the way, you posted two comments, one right after another. Because both were in my moderation queue but the message was the same, I’m just showing the one that you posted second, which also had a bit more info. Please let me know if anything got left out.)