The gig economy has transformed the way millions of Americans earn money, but it has also created a growing challenge for tax authorities: how to verify income when workers are paid through digital platforms rather than traditional employers. A new study finds that removing third-party reporting from many gig payments substantially reduced the amount of income workers reported themselves. The research suggests that when the Internal Revenue Service loses an independent record of earnings, taxpayers report less income—even when the underlying work and payments remain essentially unchanged. The findings provide a rare measurement of how information reporting shapes tax compliance and raise fresh questions about the fiscal consequences of recent changes affecting freelancers, delivery workers, rideshare drivers, online sellers, and other platform-based earners.
The study, conducted by researchers at Carnegie Mellon University, Michigan State University, the University of Chicago, and the IRS, examines a major shift in reporting rules that occurred in 2017. Under the traditional system, many forms of nonemployee compensation were reported to the IRS on Form 1099 when payments reached $600. That threshold gave tax officials an independent record of earnings, even though self-employed workers were responsible for calculating their business expenses and reporting their net income. The introduction and expansion of Form 1099-K, used for payments processed through third-party networks, created a gap for many platform workers. In a large number of cases, workers receiving between $600 and $20,000 through online platforms suddenly stopped receiving an information return for those payments.
That change did not necessarily mean the workers earned less, nor did it eliminate their legal obligation to report taxable income. Instead, it altered the information available to both taxpayers and the IRS at the moment tax returns were prepared. A 1099 form functions as an external memory of income: it tells the recipient how much a payer or payment network recorded and simultaneously gives the tax authority a matching record. Without it, workers must rely on platform statements, bank records, personal bookkeeping, or their own recollection. Economically, the reporting change reduced the probability that income would be detected through automated matching systems. In behavioral terms, it also changed the perceived visibility of earnings, creating a natural test of how strongly taxpayers respond to third-party oversight.
To isolate that effect, the researchers used a geographic comparison involving Massachusetts and Vermont. During the period studied, the reporting threshold remained at $600 in Massachusetts and Vermont, while many workers elsewhere were affected by the higher threshold associated with third-party network reporting. The research team combined state-level information returns with federal tax returns filed with the IRS and compared platform workers living in the same labor market but on opposite sides of the Massachusetts border. This design helped control for regional economic conditions, commuting patterns, platform use, and other factors that might otherwise influence both earnings and tax filing behavior. Because workers near the border could participate in similar local economies while facing different reporting environments, the comparison provided a powerful quasi-experimental measure of the consequences of losing a 1099.
The results reveal a measurable decline in self-reported income. For every dollar of gig payments that disappeared from a 1099 form, workers reported approximately 17 cents less in self-employment net earnings on their federal tax returns. The estimate concerns net earnings rather than gross receipts, meaning it reflects income remaining after workers deducted eligible business expenses. That distinction is important: a worker who receives $10,000 in payments may report substantially less as taxable business profit after accounting for mileage, supplies, equipment, fees, or other costs. The researchers’ finding indicates that the reporting change affected the final amount of profit reported to the IRS, not merely the paperwork used to document gross payments.
The 17-cent response does not mean that every worker concealed the same share of income, or that all missing information represented deliberate tax evasion. Some taxpayers may have lacked complete records after platforms stopped sending standardized forms. Others may have misunderstood how the new reporting system worked or assumed that payments not appearing on a 1099 did not need to be included. Some may have continued tracking income accurately but adjusted deductions or other parts of their returns. Yet the aggregate pattern is consistent with a decline in compliance when third-party information becomes less available. Tax administration relies heavily on matching information reported by businesses with income declared by individuals, and the study shows that this infrastructure can influence behavior as well as enforcement.
The researchers then used state-level filings to estimate the national implications of the 2017 and 2018 changes. They calculate that approximately 770,000 gig workers did not receive information returns because online platforms changed their third-party reporting practices. Across those workers, an estimated $560 million in profits went unreported on income tax filings. The figure represents income that was absent from taxpayers’ reported self-employment profits, rather than total payments made through gig platforms. Because self-employment income can be subject to both income tax and payroll taxes for Social Security and Medicare, underreporting may reduce more than one stream of federal revenue. The study therefore links a seemingly technical reporting rule to a potentially significant fiscal effect.
The findings arrive as policymakers continue to revise reporting requirements for digital work. In recent years, lawmakers and tax administrators have debated how to apply rules designed for traditional payment networks to platforms that process millions of small transactions. Lower thresholds can improve verification and reduce opportunities for underreporting, but they also impose administrative costs on platforms and generate forms that may confuse workers whose gross receipts do not reflect their actual profits. Higher thresholds reduce paperwork for businesses and workers, yet they can remove an important compliance mechanism. The central lesson of the new research is that reporting forms are not neutral administrative documents. They change what taxpayers know, what they believe the IRS knows, and how likely income is to be reported accurately.
The study also carries implications for measuring the size of the gig economy itself. Researchers, government agencies, and economists often use tax records to estimate how many people participate in independent work and how much money that work generates. If reporting rules change, a decline in recorded income may be mistaken for a decline in gig activity. The apparent size of the workforce can shrink in official data even while the underlying labor market remains stable. By demonstrating how reporting gaps alter taxpayer behavior, the researchers show why estimates based solely on tax returns must be interpreted carefully. Information reporting affects not only revenue collection but also the statistical picture of how Americans work.
As digital platforms continue to expand and millions of freelancers become responsible for managing their own taxes, the study offers a warning about the hidden consequences of administrative policy. Third-party reporting does not guarantee perfect compliance, and the absence of a form does not remove a taxpayer’s obligation to report income. But the evidence indicates that independent verification has a powerful influence on reported earnings. The researchers’ conclusion is especially relevant as additional freelancers may fall outside 1099 reporting requirements: even modest changes in individual behavior can accumulate into hundreds of millions of dollars in unreported profits. For the IRS, the challenge will be to design reporting rules that preserve reliable income verification without overwhelming workers and platforms with unnecessary complexity.
Subject of Research: The effect of third-party information reporting on tax compliance among gig workers in the United States.
Article Title: The impact of third-party reporting on tax compliance: Evidence from gig workers
News Publication Date: 7-Aug-2026
Web References: https://doi.org/10.1016/j.jpubeco.2026.105697
References: Journal of Public Economics; DOI: 10.1016/j.jpubeco.2026.105697
Keywords: Gig economy, tax compliance, self-employment, 1099 reporting, Form 1099-K, information reporting, IRS, behavioral economics, public economics, freelancers, platform workers, tax policy
