Imagine receiving financial aid through platforms like GoFundMe, Venmo, or CashApp during a crisis, only to be surprised by a federal tax form treating that aid as taxable income.
This situation arises from the IRS’s treatment of such funds, which can also influence state tax returns.
As researchers at Indiana University’s Lilly Family School of Philanthropy, we investigate the tax implications of charitable crowdfunding, which sometimes negatively impacts recipients.
A Need for Clearer Distinction
Charitable crowdfunding, also termed monetary mutual aid, involves need-based gifts exchanged between individuals. Challenges emerge when reporting protocols, made for commercial transactions, categorize these gifts as taxable income.
Our analysis of IRS rules, court cases, and community practices revealed that recipients often receive tax forms even when funds are gifts, not income.
The Rise of Mutual Aid
Mutual aid, which operates outside traditional nonprofit or governmental systems, has grown significantly. It is a community-focused effort often activated when institutional resources are unavailable or insufficient.
The COVID-19 pandemic saw a surge in mutual aid. In the U.S., documented mutual aid groups expanded from 50 to over 800 by May 2020, providing essentials when formal systems faltered.
Research from the Lilly Family School of Philanthropy’s Women’s Philanthropy Institute indicates that during the pandemic’s first year, many Americans preferred direct donations to people in need, often using platforms like GoFundMe, rather than official charities.
Tax Laws Lag Behind
The tax code struggles to keep up with the rapid expansion of peer-to-peer digital giving. Platforms process billions annually, yet reporting rules meant for business income are applied to those receiving crisis aid.
In 2021, Congress changed federal tax reporting rules, requiring platforms like Venmo and CashApp to issue 1099-K forms for transactions over $600, aimed at improving gig economy tax compliance. However, this was reversed in 2025, reinstating the $20,000 threshold.
Partial Resolution
Despite the reversal, confusion lingers. Some states still require 1099-K forms for lower amounts, and recipients may need to prove funds were gifts, not income.
In significant crises, mutual aid campaigns often exceed $20,000, such as GoFundMe campaigns for medical expenses or following disasters like the Los Angeles wildfires.
Tax experts advise keeping detailed records of such transfers and consulting professionals to ensure they’re not taxed as income.
Misunderstanding Mutual Aid
Mutual aid differs from gig work and should not be taxed similarly. The IRS excludes gifts from taxable income, but U.S. courts narrowly define “gifts,” complicating modern need-based giving.
Impact on Government Benefits
Mutual aid supports vulnerable communities who are more scrutinized by financial platforms and less likely to afford legal assistance. Expanded reporting may exacerbate racial and economic disparities and can even affect eligibility for government benefits.
Without clear IRS guidelines, those in crisis risk penalties for receiving aid. Unclear rules may also deter donors from providing direct help.
As digital crowdfunding grows, there’s a need for the IRS to clarify how noncommercial transfers should be reported to prevent crisis support from being misclassified as income.
Shelly Tygielski founded the Pandemic of Love mutual aid movement.
