An unusual alliance of liberal and conservative lawmakers, the IRS, and a conservative advocacy group hope their alignment will boost efforts to tweak rules around 1099-K tax reporting.
At issue are tax forms that payment platforms like Venmo,
The information also goes to the IRS, but doesn’t change when income is taxable and when it isn’t. The IRS for its part has cautioned there may be potential administrative challenges for the agency. Tax professionals, too, have warned that individuals who receive the forms may be confused about whether they actually need to pay taxes or not.
The concern is that individuals won’t necessarily know how to differentiate between taxable income flagged by the forms and everyday transactions like paying a friend for dinner.
Lawmakers from both parties have been pushing to lift the reporting threshold at the same time the payment platforms are lobbying for changes, too.
After a last-ditch effort in the Senate failed in December, lawmakers in both chambers have introduced legislation to raise the limit. Republicans, too, are trying to raise 1099 reporting requirement for independent contractors from $600 to $5,000. The conservative advocacy group the National Taxpayers Union has said it would support any of the legislation.
1. What is a 1099-K form?
A 1099-K form is a report of payments taxpayers who earned income freelancing or as a gig worker made throughout the year, sent by payment card companies, payment apps, and online marketplaces to both the IRS and the taxpayers.
The 2021 law lowered the 1099-K reporting threshold to $600 per transaction, and was set to take effect for the 2022 tax year. After backlash from both Democrats and Republicans as well as an uproar from businesses that rely on gig workers, the IRS delayed the rule for one year.
Previously, the law had a $20,000 income threshold as well as a minimum of more than 200 transactions.
2. Who likes the change and who doesn’t?
The IRS and online marketplaces say the lower dollar amount is complicated to administer and that individuals will be confused about what counts as taxable income.
The Coalition for 1099-K Fairness, a group of small and large online sellers, reported $200,000 in lobbying on the 1099-K changes in both the first and second quarters of 2023. AirBnB, PayPal, and Etsy, also reported separate lobbying on the issue.
Not everyone thinks the change was a bad one. A lower threshold would help increase tax compliance, said Caroline Bruckner, a tax professor at American University and former Democratic congressional staffer. Gig economy workers like Uber drivers or DoorDash delivery workers may not know without the form that they must pay taxes on income made through the app, she said.
When workers don’t get information reporting forms, they are more likely to underreport or misreport their income for tax purposes, Bruckner said, adding that properly reporting income helps taxpayers save for retirement through Social Security taxes.
“1099 is an important tool in prompting taxpayers and reminding them to properly report that income,” she said. “The point of this particular form is to prompt taxpayers to report, not to generate audits.”
3. What are lawmakers proposing?
Three proposals to raise the threshold are floating around Capitol Hill. One bill from Rep. Carol Miller (R-W.Va.) would repeal the rule and change the threshold back to the $20,000 limit. Another, from Rep. Chris Pappas (D-N.H.) would raise the threshold to $5,000.
Rolling the threshold back to $20,000 and raising the 1099 rule for independent contractors to $5,000 would cost around $14.5 billion over 10 years, according to an estimate from the Joint Committee on Taxation. Those bills were included in the GOP tax package, which advanced out of the Ways and Means Committee in June but has been stalled.
Sens. Sherrod Brown (D-Ohio) and Bill Cassidy (R-La.) have the only bipartisan legislation on the table, which would hike the threshold to $10,000 or a total of 100 transactions.
4. What happens now?
Lawmakers would need to come to an agreement on a threshold and pull together a broader deal on a tax package to enact any change. Tax policy typically is enacted through end-of-year or must-pass legislation, such as the reauthorization of the Federal Aviation Administration Act or an omnibus spending bill.
“It’s a good thing that tax experts on both sides of the aisle are looking for a solution on 1099-K,” said Ryan Ellis, a former GOP staffer and a 1099-K lobbyist. “When you have people like Senators Brown and Cassidy in basic agreement with NTU and the IRS commissioner that something has to get done this year, you know your issue has momentum.”
Brown told Bloomberg Tax he sees momentum to reach an agreement.
“We’re having conversations,” Brown said. “I think people on both sides want to see us do this.”
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