Lobbyists for online merchants and payment platforms and their congressional allies are pressing to raise the threshold that triggers tax reporting for certain sales and services before IRS forms go out to more gig workers and freelancers operating online early next year.
They’re aiming to attach the change to a potential year-end tax package, arguing it’s lawmakers’ last shot to avoid tax woes for casual online sellers in the 2023 filing season ending next April.
“I think this is something that’s critically important to settle before the end of the year,” Rep. Chris Pappas said in an interview, “especially to prevent individuals from overpaying their taxes or just experiencing confusion around receiving these forms for sales where really there was no taxable income.”
Online platforms, ranging from marketplaces like eBay to payment apps like Venmo and gig working sites like Uber, previously had to send tax reporting forms to users and the IRS only if sellers made at least $20,000 in at least 200 separate transactions. But a last-minute offset attached to Democrats’ 2021 pandemic relief package cut the threshold to $600 in aggregate earnings, which the Joint Committee on Taxation estimated would capture $8.4 billion more in tax revenue over a decade.
Pappas, a New Hampshire Democrat, is among lawmakers who argue the threshold dropped too far. He points to people selling used goods from around their homes who might surpass the $600 limit but would likely be auctioning off items for less than they bought them for and don’t owe any tax.
Pappas sponsored a House bill to raise the threshold for reporting to $5,000 and require plain language information to go out to taxpayers receiving forms. Democratic Sen. Maggie Hassan introduced the Senate version of the measure. She also represents New Hampshire, which charges no sales or income tax. Both are considered vulnerable in November, although Inside Elections with Nathan L. Gonzales rates their races Tilt Democratic.
The bill would be retroactive to the start of 2022, when the new $600 threshold took effect. Because people will file their 2022 taxes next spring, the impact of the heightened reporting would be felt early next year when companies send out tax forms.
Pappas said his goal is to include his legislation in a potential year-end tax bill, which would adjust who is subject to reporting before forms are required to go out. He added he’s regularly communicating with Ways and Means Chairman Richard E. Neal, D-Mass., about the issue.
Top tax writers have shown interest in assembling a tax package during the lame-duck period between November’s midterm elections and the end of the calendar year. The election outcome, the shape of a larger package that could serve as a vehicle and other factors could determine whether tax legislation is taken up in the coming weeks.
Growing ‘firestorm’
The Coalition for 1099-K Fairness — which includes eBay, Etsy, Mercari, Airbnb, PayPal, Block and other online payment platforms — is pressing to lift the threshold in the next possible tax vehicle before the year is out.
Akin Gump Strauss Hauer & Feld LLP registered to lobby on behalf of the group in mid-September, and the coalition then reported spending $120,000 lobbying on bills to lift the reporting threshold in the third quarter. That’s on top of what individual members like Etsy, Airbnb and Block, which owns Square and Cash App, spent.
Akin Gump’s Arshi Siddiqui, a lobbyist for the coalition, said in an interview that companies in the group have already spent time and resources to comply with heightened reporting rules but are concerned they could make it less attractive for casual online sellers to use their platforms. The coalition supports Pappas’ bill, along with other proposals from Republicans to revert to the former $20,000 requirement.
Siddiqui, a former top aide to Speaker Nancy Pelosi, said momentum for changing the 2021 threshold is rising as tax filing season approaches. “The firestorm on this is growing, but it is still growing because it’s not completely real yet,” she said.
Ryan Ellis, another lobbyist for the group and president of the Center for a Free Economy, is meeting with Republican offices alongside fellow conservative groups and pressing to lift the threshold as high as possible. He said while Republicans support addressing the issue, they’re not willing to make it their request when they want to use their political capital to extend business tax breaks in any lame-duck session package. But he said they’re willing partners if Democrats are too.
Cost could be a roadblock to including the legislation in a year-end bill. Ellis also said there’s “a deal to be had here,” with a range of options in terms of the threshold.
Pappas said setting a $5,000 threshold is already a “good compromise” but he’s hopeful that lawmakers can keep discussing the appropriate level.
“This is a fairness issue more than anything else, and I think this is something that absolutely can be worked out,” he said, noting he’s had constituents approach him consistently with concerns.
‘Independent workers’
While opponents of the lower threshold emphasize the potential impact on casual online sellers, the provision is aimed at capturing a growing form of income: wages from gig work. A survey from McKinsey & Co. found that 36 percent of employed respondents identify as “independent workers,” which could include gig, contract, freelance or temporary work. The consulting firm estimated that could mean 58 million Americans do independent work.
Caroline Bruckner, tax professor and managing director of American University’s Kogod Tax Policy Center, said raising the threshold would mean missing a significant portion of gig workers who earn money on apps like Uber, Airbnb and DoorDash.
Without tax forms, gig workers could miss self-employment taxes and the chance for Social Security and Medicare eligibility down the line, creating a challenge in retirement, and could end up facing burdensome tax audits or penalties, said Bruckner, who’s testified before Congress on the issue.
It also ties into a broader debate about how companies employing gig workers classify them. The Labor Department recently proposed a rule that would make it harder for companies to classify workers as independent contractors rather than employees, which means the right to more benefits in exchange for less flexibility.
Bruckner said companies can be hesitant to provide tax information beyond what’s required to workers out of a concern that it could complicate classification issues.
Ultimately, she said, evening the reporting threshold for online platforms that process payments with other types of work is the “bare minimum” in a tax system that hasn’t been adjusted to account for the expanding gig economy.
“We’re so far past where we need to be in terms of facilitating tax compliance of millions and millions and millions of taxpayers,” she said.
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