New IRS Reporting Requirements Set to Hit Small Businesses, Gig Workers

In 2022, freelancers, small businesses, and independent contractors will experience a more burdensome and complex tax season due to new reporting requirements that came into effect through legislation passed by Democrats last year. 

These changes were snuck into President Biden’s $1.9 trillion stimulus bill passed on a party-line basis and signed into law last March. The legislation expanded 1099-K reporting requirements by lowering the reporting threshold from $20,000 to $600 and eliminating the threshold requirement that taxpayers must have more than 200 transactions in one year to file. 

These new requirements will significantly increase tax complexity for millions of independent contractors, small businesses, and freelancers by increasing what they have to report to the federal government. In essence, this creates new paperwork burdens that will disproportionately harm low and middle-class taxpayers that have been decimated by the coronavirus pandemic over the last two years.

The legislation also extends the 1099-K reporting to “specified electronic payment processors” and will harm gig economy workers who are compensated via online services such as Venmo, PayPal, Etsy sellers, Uber and Lyft drivers, and even food delivery workers. These workers typically work in these job fields due to the flexibility that they can provide.

This is not the first time Democrats have enacted burdensome new reporting requirements. In 2010, lawmakers included new 1099 reporting requirements in Obamacare. This law required small businesses to send 1099 forms for all purchases of goods and services over $600 annually. Soon after this provision was signed into law, the National Taxpayer Advocate raised concerns that these reporting requirements would cause “disproportionate” harm to small businesses and do little to improve tax compliance. 

This provision was so unpopular with the American public that it was quickly repealed in 2011 with a bipartisan vote of 87 to 12 in the Senate and 314 to 112 in the House. The Obama administration even hailed repeal of the provision a “big win” for small businesses in a press release.

These new reporting requirements should be swiftly repealed as proposed by Congresswoman Carol Miller (R-W.Va.) who has introduced H.R.3425, the Saving Gig Economy Taxpayers Act. Senator Rick Scott (R-Fla.), has introduced similar legislation in the Senate.

After two years of economic unpredictability, we should be looking to support gig economy workers and small businesses who have struggled and persevered throughout the pandemic. The new 1099-K reporting requirements do the exact opposite, and will create unneeded complexity for millions of taxpayers this year.