The tax gap is the amount of tax unpaid each year from underreporting taxable income, mostly from honest taxpayers who don’t fully understand the requirements. Most people are aware that income earned from an employer (W-2), bank interest/dividends (1099-INT/DIV), and rental income is taxable. However, many are unaware that cash payments received, in any amount, for working side jobs must be reported.
I’m often asked about the mythical $600 tax reporting limit and know that many of you will never receive a 1099-MISC from the payer when the payment you received is under this amount. Not having this form does not exempt you from reporting that or any other income earned, from any source, and from any country.
There are several exemptions under the U.S. tax code for certain types of income, but this is not common for most taxpayers.