House Republicans’ new tax cut package includes a measure that would slash a $600 tax filing threshold for gig workers and sellers who use payment networks like PayPal or Venmo.
The measure aims to stop the attack on the gig economy and Americans by repealing the Democrats’ new rule that the IRS targets gig workers and those who use Venmo or PayPal to sell items such as used sofas, guitars or concert tickets the office of House Ways and Means Committee Chairman Jason Smith, a Republican from Missouri, said in a news release Friday as the package was introduced.
It would return the level at which payment networks are required to file Internal Revenue Services 1099-K forms at $20,000 and more than 200 transactions.
The new $600 threshold, which has no minimum number of transactions, comes from the American Rescue Plan Act of 2021, which was the Democrats’ $1.9 trillion COVID-19 relief package.
Supporters of the move to $600 have argued it will help the federal government assess the size of the gig economy and help workers document their income so they can receive adequate benefits.
However, the reform has generated a backlash. Republican Rep. Adrian Smith of Nebraska, for example, said in a floor speech in 2021 that it’s a new cash grab targeting workers in the gig-economy.
The reform has also been criticized for causing confusion, particularly regarding the types of transactions to be reported. The IRS said the 1099-K form was intended for businesses to report income from goods and services and was not intended to track personal transactions. However, payment platforms lack mechanisms to distinguish between personal spending and goods or services; a person who sends a Venmo payment, with Thanks! as the caption says, she could be returning dinner to a friend or paying for the hairdresser, and the platform has no way of knowing which is the case.
Also, the rules regarding the sale of personal property on PayPal
and Venmo appeared unclear. Many people sell their personal possessions at a loss on sites like eBay
Even if a capital gains tax applies only to properties sold at a profit, the new paperwork could cause casual sellers of personal property to believe they owe a capital gains tax when they don’t, critics of the reform said.
In December, the IRS delayed implementing this reform, announcing that calendar year 2022 would instead serve as a transitional period and help ease confusion for taxpayers and tax professionals. This came after measures that would have delayed the change failed to turn it into a year-end spending bill.
Steven M. Rosenthal, a senior fellow at the Tax Policy Center, and Daniel Hemel, a professor at NYU School of Law, wrote in a TaxVox blog that Congress’s decision to lower the threshold for third-party payment platforms was a step in a positive direction, and delaying the $600 rule is an unfortunate blot [the Biden] tax register of administrations.
Rosenthal told MarketWatch that the delay is only tilting the field towards tax fraud against honest taxpayers, hence really poor tax policy.
In contrast, William McBride, a member of the Tax Foundation, said it made sense to raise the reporting threshold from $600.
At $600, it would ensnare thousands of unsuspecting taxpayers with a new requirement and, to the extent that taxpayers eventually comply, swamp the IRS with additional forms and information at a time when the IRS is already overwhelmed from too many forms and information, McBride said.
McBride also said the Republican House tax-cut package, dubbed the American Families and Jobs Act, likely won’t be enacted given Democrats control the Senate and the White House.
The House Ways and Means committee was reviewing the package on Tuesday.
The bill as a whole could pass the House, but will likely face difficulties in the Senate and White House as many Democrats would be reluctant to unwind green energy
credits issued as part of the Inflation Reduction Act, the Tax Foundation expert said.
However, the proposed tax cut package brings to the fore Republican economic goals ahead of an election year.
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