Folks who pick up occasional gig economy work or who sell some goods online on the side can enjoy making a little extra cash online this holiday season, but come Jan. 1, more of that income will start popping up on tax forms.
As part of the COVID-19 relief bill passed earlier this year, Congress drastically lowered the threshold for who should get a form for the 2022 tax year reminding them that they got paid through credit cards and online payments processors. And efforts by tech companies to delay or overturn the provision, which appears poised to affect tens of millions of people, have little momentum.
The so-called 1099-K form has become, for the IRS, almost the definition of the ever-expanding gig economy. It captures not just the Uber and DoorDash drivers that people most associate with the gig economy, but also those renting out their apartments, walking dogs, cleaning homes, selling their paintings or auctioning their baseball card collections.
"Over the course of the last 10 years, a whole lot more people have gotten into the gig economy," said Deborah Pflieger, a tax principal at accounting giant EY, who leads the practice on "all things 1099-reportable."
"The number of platforms out there has clearly exploded … You can go online and find just about anything — or anyone who will do anything," she added.
Before, mostly those who took in more than $20,000 and engaged in more than 200 transactions got tax forms related to all this booming e-commerce. The 1099-Ks came from credit card companies, payments processors such as PayPal and Stripe and other "payment settlement entities" that linked up buyers and sellers for transactions.
That meant that some full-time online sellers were getting 1099-Ks, and they were at least on notice if they owed taxes on the income. But people who sold just a few high-value pieces of Grandma's jewelry rarely saw the form. The same was true of drivers who gave a thousand $15 Uber rides: They had enough transactions, but still made less than the $20,000. In either case, many of them forgot — or "forgot" — to figure out what they owed. After years of gig work without paperwork, governmentestimates vary, but suggest less than half of platform workers and sellers who owe taxes appear to be paying when they're not subject to "information reporting" like the 1099-K. On the other hand, almost all of those workers and sellers comply when they're reminded of the income.
That's why, as part of paying for the American Rescue Plan, Congress lowered the threshold for the form to just $600 and removed the minimum number of transactions. U.S. government budget officials said the provision was worth almost $8 billion over a decade, although Pflieger said it's hard to estimate because the lack of reporting means the IRS doesn't even have a clear sense of what income is out there.
"The whole concept of internet transactions working the way they do now has just exploded, and the government's always going to be behind," she said.
Tech companies, meanwhile, have been pushing back on the provision. Earlier in November, the Internet Association, a trade group representing online companies, urged congressional leaders to delay the new requirements in a letter warning of potential overpayments. Many of IA's members, including Airbnb, DoorDash, eBay, Etsy, Handy, PayPal, Stripe, Uber and others, either provide casual sellers a digital platform for their goods and services, or else help facilitate payments. They'll either have to gather the data and send out the tax forms to their users, or else deal with sellers who are furious they're suddenly being taxed.
Mike Dabbs, senior director for Americas government relations for eBay, which matches buyers with sellers and also provides payments processing, noted that many of those using his company's platform don't owe taxes because they're selling at a loss.
"You have to go through all these different steps or even receive professional tax expert handling to figure out that you didn't owe any taxes on this anyhow," he said.
Dabbs said the company has had "dozens of meetings" with members of Congress or staff who don't want to see "thousands of their constituents receive unnecessary IRS forms." But, he conceded, with just a few weeks before the provision goes into effect, the fixes eBay wants to see are far off. "We don't have a solution yet, of course," he said.
An all-Republican House bill to repeal the new thresholds has garnered just six co-sponsors while languishing in the Democratic-controlled tax-writing committee since May. A Senate version has no co-sponsors and hasn't moved since March.
That leaves many gig and platform workers poised to get 1099-Ks in early 2023 for the money they make online next year. Exactly how many people will get the forms is difficult to say, but Pflieger, Dabbs and the Internet Association all estimate it could be millions, if not tens of millions.
Dabbs said that eBay alone has almost 8 million sellers in the U.S., the "vast majority" of whom are engaged in what he called "casually selling."
"When you put in all of these other platforms, you are well into the millions," he added.
Pflieger said one issue is that, much as the government has struggled with labor implications of gig work, the IRS is also catching up to the tax implications and trying to move on from a system built around cash or standard bank transactions.
"We really have brick-and-mortar rules today for a gig economy, which is a problem," she said.
