A pair of lawmakers proposed to raise the required threshold for reporting on transactions from companies like Airbnb, eBay, Etsy, PayPal and Venmo from $600 to $10,000 to save headaches for small businesses and individuals who work in the gig economy.
Sen. Sherrod Brown, D-Ohio, and Bill Cassidy, R-Louisiana, introduced the Red Tape Reduction Act on Thursday to increase the threshold for when individuals and entrepreneurs receive 1099-K tax forms when they sell goods online so fewer small businesses and casual sellers would receive the extra paperwork. By extension, their accountants and tax preparers wouldn't be swamped with all the extra forms either.
"This red tape hits small businesses and other Ohioans selling products online, sucking time and resources from the smallest online sellers," Brown said in a statement. "By raising the threshold, we can prevent the IRS from interfering with minor transactions and cut down on excessive paperwork."
The American Rescue Plan Act of 2021 lowered the reporting threshold for third-party settlement organizations to as little as $600 per year from the earlier threshold of $20,000 for more than 200 transactions per year. The goal was to deter tax evasion and help close the tax gap by providing the IRS with records of the transactions made by users of third-party payment platforms.
"The cap the Biden administration implemented is hurting everyone from small business owners to people just trying to pay their rent," Cassidy said in a statement. "This bill lifts that cap and prevents the IRS from spying on American taxpayers."
Last December, the IRS postponed the lowered threshold for reporting on transactions involving services such as eBay, PayPal, Venmo, Etsy, Airbnb and third-party settlement organizations. The new threshold was scheduled to take effect in the New Year and generate millions of new forms going out to unsuspecting taxpayers and their accountants in the midst of tax season (
However, under current law, online sellers and small businesses will still be required to complete a 1099-K form for any transaction over $600 starting next year. Brown has been working to find solutions to relieve this burden in conjunction with Sen. Maggie Hassan, D-New Hampshire. Last month, during a Senate Finance Committee hearing, Brown asked IRS commissioner Daniel Werfel if he would support congressional efforts to increase the threshold and if it would be easier to administer with the higher threshold.
"Absolutely, the higher the threshold, it would reduce volume," Werfel replied. "It would reduce complexity and would make the IRS's job a lot easier. In terms of whether we can support that initiative, that's an issue that I always have to defer to Treasury on. On any piece of legislation, I do not have the authority to give the administration's position. It's Treasury that does that."
The delay of the 1099-K threshold change had an impact on taxpayers and preparers this past tax season, relieving some uncertainty while perhaps prompting lingering worries.
"That was one of those things where we were all primed and ready to go, and then it changed. " said Kathy Pickering, chief tax officer at H&R Block. "It caused a lot of confusion and uncertainty as we were working back and forth to figure out what does that mean and how do we help taxpayers?"
A number of leading tech companies have banded together as the Coalition for 1099-K Fairness to lobby Congress to raise the threshold for Form 1099-K reporting. Its members include Airbnb, BikeList, CashApp/Square, eBay, the Electronic Transactions Association, Etsy, Eventbrite, Goldin, Kidizen, Mercari, Noihsaf Bazaar, OfferUp, PayPal, Poshmark, Reverb, Rover, the Sports Fan Coalition, Square/Cash App, Stubhub, TechNet and Tradesy.
"The Coalition applauds Senators Brown and Cassidy for joining together in introducing the Red Tape Reduction Act," said Arshi Siddiqui, a partner at Akin Gump, who is leading the coalition's lobbying efforts, in a statement. "This represents a significant step forward and builds upon Congressional support across the political spectrum to ensure that millions of online consumers are not drawn into a web of burdensome tax reporting requirements. The Biden Administration's decision to delay implementation of the new requirement provided a critical window for Congress to act and the clock is ticking with the delay expiring at the end of the year. The Brown-Cassidy bill underscores the need to act quickly in ensuring that Americans are not hit with a tsunami of 1099-Ks in January, especially as Americans face financial challenges in a post-pandemic economy."
