Momentum is building in Congress to increase the business transaction threshold as lawmakers from both parties and e-commerce platforms clamor for changes to new tax reporting requirements.
The 2021 pandemic aid law included a provision to help gig economy workers correctly pay their taxes by requiring Uber, eBay, and other companies to tell contract workers how much money they had made on those platforms. The law requires those platforms to send 1099-K forms to taxpayers with more than $600 in business transactions, without setting a minimum threshold for number of transactions, starting for tax year 2022.
The change threatens to confuse casual sellers who haven’t actually made any income, lawmakers and lobbyists say—like anyone reselling Taylor Swift tickets. Because forms will be sent in January, the ideal time to stop the rollout would be in the lame-duck session, said Arshi Siddiqui, a lobbyist for the Coalition for 1099-K Fairness, a group eBay launched in response to the decrease.
“The 1099-K tsunami is coming in January,” said Siddiqui, a former aide to Speaker Nancy Pelosi (D-Calif.). “We’re talking about millions of 1099-K’s going out, some of which are based on transactions that do not trigger tax liability.”
Before this year, anyone doing business through third-party payment networks like PayPal and Venmo would only receive a form if they had $20,000 worth of business transactions, with a minimum of 200 transactions. Gig workers were previously at risk of getting audited and owing back taxes for which they weren’t prepared because they weren’t receiving the forms, according to Government Accountability Office reports on the issue.
Republicans in the House and Senate have introduced legislation to revert the requirement back to the $20,000 threshold, while some Democrats are pushing for a new minimum of $5,000. A group of Republicans earlier this week urged the IRS to delay the rule’s implementation.
Any change happening at all before platforms must start sending out the 1099-K forms depends on whether Congress will come to a deal on an end-of-year tax package, lawmakers said. While members from both parties and both chambers are eager to raise the threshold, it’s unclear if there’s agreement on the $5,000 threshold, full repeal, or something in between.
“I know the Republicans have a separate bill that goes to a higher limit, and I think there’s no perfect number here,” said Rep.
Top lawmakers on the Senate Finance Committee, though, said talks on a year-end tax deal, including any change to the 1099-K reporting requirements, are in early stages. Ranking member
“We’re just beginning to have discussions on taxes,” Wyden said. Until Tuesday, “when there was a sign of life with respect to the spending issue, I wasn’t convinced there’d be much of a path for taxes,” he said.
Push from Platforms
EBay’s coalition reported spending $120,000 in the third quarter on lobbying to raise the threshold, according to a House lobbying disclosure. The group, which also includes smaller platforms like Rover and Kidizen, does not specify which option whether raising to $5,000 or $20,000, it prefers.
The new requirement will discourage individuals from selling used items to get extra cash, said Mike Dabbs, eBay’s senior director for Americas government relations.
Mary Fallon, the co-founder of Kidizen, a resale marketplace for kids’ clothing, said she’s concerned the $600 threshold will stifle the sellers on her platform, many of whom she said likely won’t actually qualify to pay taxes on their transactions.
“It’s not going to be worth the effort anymore to sell under this 1099 tax regime,” Fallon said. “Most will try to pay taxes because they don’t even realize that they don’t owe taxes. It’s incredibly confusing.”
Gig Economy Issues
Some say the new requirement helps fix tax reporting issues that arise out of the gig economy.
Caroline Bruckner, managing director of American University’s Kogod Tax Policy Center, emphasized that the new reporting rule doesn’t impose new taxes. Because so many workers weren’t getting the forms, they left themselves open to potential audits and penalty exposure, said Bruckner. The $600 threshold also aligns with the Form 1099-MISC, which some workers receive if they earned more than $600.
Paying the tax on this income would help gig workers save for retirement, she said.
“Paying their self employment tax is often the only retirement savings that they have,” Bruckner said. “If they don’t get these forms and aren’t prompted to properly pay their self employment tax, they’re not fully contributing to their Social Security, and that translates to less retirement savings for them down the line.”
Providing the forms may also decrease the chance for workers to face potential audits or penalties from the IRS from not reporting the income, Bruckner said, pointing to nonpartisan government reports on the issue.
Only 30% of platform workers made more than $5,000 in 2016, so most weren’t receiving 1099-K forms, according to a 2020 GAO report.
“This didn’t come out of nowhere,” she said. “This is a very real issue that Congress tried to tackle.”