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House Republicans’ new tax-cut package includes a measure that would squash a $600 tax-reporting 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 Democrats’ new rule that has the IRS targeting gig workers and those who use Venmo or PayPal to sell items like a used couch, guitar, or concert tickets,” said the office of House Ways and Means Committee Chairman Jason Smith, a Missouri Republican, in a news release on Friday as the package was introduced.
It would return the level at which payment networks are required to send out the Internal Revenue Service’s 1099-K forms to $20,000 and more than 200 transactions.
The new $600 threshold, which comes with no minimum number of transactions, stems from 2021’s American Rescue Plan Act, which was Democrats’ $1.9 trillion COVID-19 aid package.
Supporters of the change to $600 have contended that it will help the federal government gauge the size of the gig economy and help workers document their income so they can receive proper benefits.
However, the reform has generated a backlash. Republican Rep. Adrian Smith of Nebraska, for example, said in a House floor speech in 2021 that it’s a “new cash grab” that targets gig-economy workers.
The reform was also criticized for eliciting confusion, especially regarding what types of transactions needed to be reported. The IRS said the 1099-K form was directed toward businesses to report income from goods and services, and it was “not intended to track personal transactions.” Yet, payment platforms do not have mechanisms to distinguish between personal expenses and goods or services; a person sending a Venmo payment, with “Thanks!” as the caption, could be paying back a friend for dinner or paying their hairdresser, and the platform has no means of knowing which is the case.
Additionally, the rules surrounding the sale of personal property on PayPal
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and Venmo have appeared unclear. Many people sell their personal property at a loss on sites like eBay
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Even though a capital-gains tax only applies to property sold at a profit, the new paperwork could lead casual sellers of personal property to believe they owe a capital-gains tax when they do not, said critics of the reform.
In December, the IRS delayed the implementation of this reform, announcing that the 2022 calendar year would instead serve as a transition period and help ease confusion for taxpayers and tax professionals. That came after measures that would have delayed the change failed to make it into a year-end spending bill.
Steven M. Rosenthal, senior fellow at the Tax Policy Center, and Daniel Hemel, 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 blemish on [the Biden] administration’s tax record.”
Rosenthal told MarketWatch the delay is “just tilting the field towards tax cheats against honest taxpayers, so really poor tax policy.”
Conversely, William McBride, a fellow at the Tax Foundation, said raising the reporting threshold from $600 makes sense.
“At $600, it would ensnare thousands of unsuspecting taxpayers with a new requirement and, to the extent taxpayers eventually comply, it would deluge the IRS with additional forms and information at a time when the IRS is already overwhelmed with too many forms and information,” McBride said.
McBride also said House Republicans’ tax-cuts package, dubbed the American Families and Jobs Act, probably won’t get enacted given that Democrats control the Senate and White House.
The House Ways and Means Committee was considering the package on Tuesday.
“The bill as a whole may pass the House but likely faces difficulties in the Senate and the White House, as many Democrats would be reluctant to unwind the green-energy
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credits enacted as part of the Inflation Reduction Act,” the Tax Foundation expert said.
Nevertheless, the proposed tax-cut package brings Republican economic goals to the forefront ahead of an election year.
Related: Here are the Republicans running for president in 2024
