Handling Unreported Income Notices for Gig Platform Payments

Quick overview

If you receive an unreported income notice tied to gig platform payments, the IRS is telling you that a third‑party (a gig or payment platform) reported payments it processed that don’t line up with the income you reported. These notices are common for gig workers because platforms report gross payment totals, and mismatches can come from refunds, fees, transfers, or bookkeeping errors. The goal is simple: verify the numbers, collect supporting documents, and reply on time.

(Authoritative sources: IRS About Form 1099‑K — https://www.irs.gov/forms-pubs/about-form-1099-k; IRS tax tips for gig workers — https://www.irs.gov/newsroom/tax-tips-for-gig-economy-workers.)

Why these notices happen (common causes)

1. Gross vs. net reporting: Platforms usually report gross payments (total paid to you) on Form 1099‑K. Your tax return may correctly show only your net income after fees, refunds, or chargebacks—this can create a mismatch.
2. Duplicate or split reporting: You might receive multiple 1099s for the same activity (for example, a platform plus a payment processor) or the platform reports payments processed through two different accounts.
3. Missing income on your return: You genuinely forgot or omitted payments and need to amend.
4. Data or clerical errors: Typos or misapplied payments on either the platform’s or your return.
5. Incorrect taxpayer identifiers: The platform reported income to the IRS under the wrong taxpayer identification number (TIN) and the payment was applied to the wrong Social Security number or EIN.

Step‑by‑step action plan (what to do first)

1. Read the notice carefully

• The notice will list the amount the IRS received from a payor and the date range. Note the deadline to respond (respond by the date on the notice).

1. Gather documentation within 48–72 hours

• 1099‑K and any other 1099s you received from platforms or processors.
• Platform payout reports (monthly/yearly summaries), trip or sales reports, and transaction detail exports.
• Bank and merchant-account statements showing deposits and refunds.
• Records of refunds, disputes, fees, reimbursements to customers, and transfers to your business account.

1. Reconcile line by line

• Compare the platform’s gross payout total to the income you reported. Create a short worksheet that lists: platform total, refunds/chargebacks, fees, reimbursed items, and net taxable receipts.

1. Identify the reason for the mismatch

• If the platform reported gross receipts but you reported net receipts, document each deduction with receipts or ledger entries.
• If a payment was duplicated or reported under another TIN, get proof from the platform.

1. Contact the platform (if needed)

• Ask for corrected 1099‑K or an explanation. Most platforms have a tax or account‑support process for reissuing or explaining forms.

1. Respond to the IRS notice with evidence

• If the notice is incorrect, send a clear explanation and the supporting records the notice requests. Keep copies of everything you mail or upload.
• If the notice is correct (you underreported), calculate the additional tax and either pay immediately or file an amended return.

1. If you need to change your return

• File an amended return (Form 1040‑X) to report the omitted income and claim allowable expenses. If you owe tax because of the correction, include payment or set up a payment plan with the IRS. (See Form 1040‑X information on the IRS site: https://www.irs.gov/forms-pubs/about-form-1040-x.)

1. Ask for penalty relief when appropriate

• If you have a good reason (reasonable cause) for the mismatch or it was an administrative error by the platform, you can request relief. The IRS may also offer first‑time penalty abatement in qualifying situations. See IRS penalty relief guidance: https://www.irs.gov/payments/penalty-relief.

How to assemble a clear response package for the IRS

Your response should be concise and factual. Include:

• A cover letter that states whether you agree or disagree with the IRS figures and briefly summarizes why.
• Copies of the 1099‑K and any other 1099 forms you received.
• Platform transaction detail reports that match the period in question.
• Bank or merchant statements that show deposits, refunds, or transfers.
• Receipts and invoices for deductible business expenses if the issue is net vs. gross reporting.
• If asking the platform to correct a 1099‑K, include correspondence from the platform confirming the error or correction.

Label each document and add a one‑page reconciliation worksheet that shows how you moved from the platform gross amount to your taxable net.

Common responses and outcomes

• No change: After reviewing your documentation, the IRS accepts your explanation.
• Adjusted assessment: You agree you underreported and the IRS recalculates tax, interest, and any penalties.
• Amended filing: You submit Form 1040‑X and include corrected income and expenses.
• Collection actions: If you don’t respond and tax is due, the IRS will assess tax, penalties, and interest and may pursue collection.

Practical examples (realistic scenarios)

Example A — Net vs Gross: A delivery driver gets a 1099‑K showing $15,000 in gross payments. The driver’s bookkeeping shows $15,000 gross less $2,000 in customer refunds and $1,500 in platform fees. By supplying a worksheet and fee/refund receipts the driver shows that taxable receipts match their return’s net income.

Example B — Missing 1099: A designer worked on two marketplaces. One marketplace issued a 1099‑K and the other didn’t. The IRS has records of both; the designer missed the income from the second marketplace. The right fix was an amended return showing the additional income and related business expenses.

Preventive practices to avoid future notices

• Request and download a yearly payout summary from each platform.
• Track gross receipts, refunds, fees, cost of goods sold, and reimbursements in a bookkeeping app or spreadsheet.
• Reconcile platform reports with bank deposits monthly, not annually.
• Keep copies of all customer refunds and dispute resolutions.
• Make sure your tax ID (SSN/EIN) and legal name are correct in each platform account settings.

For practical tips on recordkeeping and documenting side‑hustle income, see our guide: How to Document Side Hustle Income to Avoid IRS Questions.

You may also find these resources helpful when reconciling 1099s and preparing to amend returns: Filing Taxes After Receiving a 1099‑K: What You Need to Know and Reconciling Missing 1099 Income: How to Correct Your Return.

When to hire a tax professional

If you are unsure how to reconcile totals, the platform refuses to correct a form, or the IRS proposes a large assessment, get professional help. Tax professionals (CPAs, enrolled agents) can:

• Prepare a clear response package.
• Calculate additional tax, interest, and possible penalties.
• Negotiate penalty relief or installment agreements.
• Represent you during appeals.

In my practice working with gig workers, having a concise reconciliation and a ledger often avoids escalations. A tax pro speeds recovery time and reduces stress.

Timeline and record retention

Respond by the deadline on the notice—many IRS notices expect a reply within 30 days, though the exact timing will be printed on your notice. Keep your files for at least three years after filing; longer if you have unfiled returns, fraud, or substantial understatements.

Final checklist before you send anything to the IRS

• Did you compare the platform’s gross receipts to your records and annotate differences?
• Do you have backup (platform reports, bank statements, receipts) for refunds, fees, and reimbursements?
• If you need a corrected 1099‑K, have you requested it and saved the platform’s response?
• Is your cover letter clear, dated, and signed?
• Did you keep copies of all materials you mailed or uploaded?

Disclaimer

This article is educational and does not replace personalized tax advice. For specific guidance tailored to your situation, consult a licensed tax professional (CPA, enrolled agent, or tax attorney). The information here references IRS guidance current at the time of writing (IRS About Form 1099‑K: https://www.irs.gov/forms-pubs/about-form-1099-k; IRS tax tips for gig workers: https://www.irs.gov/newsroom/tax-tips-for-gig-economy-workers).