Income-tax-491626 1920 by StevePB is licensed under CC BY-SA 4.0
Democrats rushed through new, destructive 1099-K reporting requirements on independent contractors, small businesses, and freelancers in the American Rescue Plan signed into law by President Biden in March of 2021.
With the midterm elections on the horizon, some Congressional Democrats are now looking to enact a partial repeal of these reporting requirements. This is insufficient and should be opposed by lawmakers. If Democrats want to fix their mistake, they must fully repeal the 1099-K expansion.
Democrats’ new reporting requirements began at the start of 2022 and will complicate the tax process for countless independent contractors, small businesses, and freelance workers throughout the United States. These changes lowered the reporting threshold from $20,000 to $600 or more for 1099-K reporting. The bill also eliminated the threshold requirement that businesses have more than 200 transactions in one year to be required to file. Under the new reporting rules, a far greater number of hardworking Americans will encounter a more burdensome and intrusive tax season.
A 1099-K Form is an IRS tax document used to report payments received by a business or individual for the purchase of goods and services that were paid via a third party. The changes extend the 1099-K reporting to “specified electronic payment processors” meaning this would impact those whose work is compensated via online services like Venmo and PayPal while also negatively impacting Etsy sellers, rideshare drivers, and food delivery workers.
Now, as these new requirements have taken effect, workers are starting to notice the newly imposed burden. With the midterm elections coming up in the fall, some vulnerable Congressional Democrats want to raise the reporting threshold. Representatives Chris Pappas (D-N.H.) and Cindy Axne (D-Iowa) have introduced legislation in the house that would raise the reporting threshold from $600 to $5000. Senators Maggie Hassan (D-N.H.) and Kyrsten Sinema (D-Ariz.) have introduced similar legislation in the Senate.
Democrats’ proposed reporting changes fail to go far enough in protecting taxpayers from a burdensome tax filing season. While their legislation raises the reporting threshold by $4400, this is still far lower than the initial reporting level of $20,000. The Democrats’ proposal also fails to reinstate the transaction threshold that only required individuals and businesses to report these earnings if they participated in more than 200 transactions per year.
Republicans should hold out and fight for reinstatement of the original reporting requirements like Congresswoman Carol Miller (R-W.Va.) has done. Last May, Congresswoman Miller introduced the Saving Gig Economy Taxpayers Act, H.R.3425, which would raise the reporting requirement back to $20,000 while also reinstating the transaction threshold requirement. Senator Rick Scott (R-Fla.) introduced companion legislation in the Senate, S.948.
Senator Bill Hagerty (R-Tenn.) has introduced S.3546, the SNOOPS Act which would similarly eliminate the reporting requirement for individuals and businesses unless they have earned more than $20,000 on more than 200 separate transactions in an applicable tax year. Senator Hagerty’s legislation has currently garnered 12 cosponsors, all of which are Republicans.
This isn’t the first time that Democrats have made changes to the 1099 reporting requirements. In 2010, Democrats implemented these burdensome 1099 reporting requirements as part of Obamacare and required businesses to send 1099 forms for all purchases of goods and services over $600 annually. This provision of the law was so unpopular with the American public that it was quickly repealed in 2011 with a bipartisan vote of 314 to 112 in the House and 87 to 12 in the Senate. The Obama administration even hailed repeal of the provision a “big win” for small businesses in a press release.
Republicans should take a lesson from the past and push for a full repeal of Democrats’ 1099-K expansion, rather than support a watered-down measure to help benefit vulnerable Democrats in the upcoming midterm election.