Airbnb, Etsy and other pillars of the gig economy are shaping up to be rare losers in Democrats’ coronavirus relief package.
Buried in the legislation are provisions that will require them to provide a lot more information to the IRS about the money millions of people earn through their platforms, which is likely to bring in billions of dollars more in federal taxes.
That will generate cash Democrats can use to reduce the total cost of their stimulus plan.
But the industry says it’s getting ambushed, complaining it didn’t even know lawmakers were planning the tax crackdown until shortly before it was approved last week by the House. Company officials worry that asking people for their Social Security numbers — which the companies will need to produce the tax documents — and raising the specter of the IRS will scare many away from their platforms.
“We’re concerned that the proposal could unintentionally dissuade many casual and one-time sellers, who could be forced to share their Social Security number with online platforms before listing anything for sale,” said a spokesperson for Etsy. That could “turn away would-be entrepreneurs at a time when many desperately need the extra income.”
It’s not entirely clear who pushed for the provisions, though efforts to require more reporting by the industry aren’t new. A spokesperson for the tax-writing House Ways and Means Committee did not respond to a request for comment.
The wrinkle comes as Senate Democrats debate the stimulus plan, which lawmakers aimed to get to President Joe Biden’s desk by March 14, when expanded jobless benefits expire. Much of the focus on the stimulus has been on its winners, though there would be a few losers as well.
For those in the sharing economy, the issue is provisions that would dramatically reduce the threshold at which companies like eBay, GrubHub, Doordash and others would have to report to the IRS the earnings of people who use their platforms to make money. The users would also have to be given the information.
Currently, that’s only necessary when someone earns more than $20,000 through at least 200 transactions. Democrats would drop that to anyone earning more than $600, regardless of the number of transactions.
That’s projected to generate a lot of money — $8.4 billion over the next decade, according to an official forecast — because people are more likely to pay taxes on their earnings when they know someone else is telling the IRS how much they made.
Unlike more traditional jobs, there is relatively little independent reporting of how much people in the gig economy earn. Many in service-related businesses are treated by their employers as contractors, for example, so they may not be having taxes withheld from their pay. They’re supposed to instead be paying estimated taxes each quarter.
Others, like people selling goods on eBay, Etsy or Facebook, are just average people trying to make some extra cash.
Many may not track how much they’ve earned or realize that it’s subject to tax, in part because they don’t make enough to trigger the current income reporting requirements, the nonpartisan Government Accountability Office said in a report last year.
“Platform workers may not receive information on their earnings, creating compliance challenges for them and enforcement challenges for IRS,” GAO said.
That makes the area ripe for tax cheating.
The issue has been on lawmakers’ radar for several years, though much of the focus had been on a competing proposal by Senate Minority Whip John Thune (R-S.D.). He has a more sweeping plan that would deal with things like worker classification rules while also imposing tougher income-reporting requirements, although not as stringent as Democrats are proposing.
Industry lobbyists say they did not anticipate Democrats swiping Thune’s idea and repurposing it for their coronavirus measure.
Said Thune: “I will continue to support a comprehensive approach to truly help workers in the gig economy.”
Proposals to raise money via so-called third-party reporting have long been popular with lawmakers searching for cash because they generate revenue but are neither tax increases nor spending cuts. And the $8.4 billion the gig worker proposal raises helps keep Democrats within their $1.9 trillion budget for the coronavirus relief.
The industry says it does not condone tax cheating. But it says Democrats’ reporting threshold is too low and would affect too many people who only sometimes use their platforms.
The companies say the tax requirements may come as a surprise to many, who might not understand what is being reported. The IRS form the companies would use — the 1099K — would report the gross amount of money someone has earned.
That isn’t necessarily what they’d have to pay tax on, though. The tax would only apply to their profits, after their own costs or expenses are deducted.
So if someone sold a bike on eBay for $800, for example, they’d get a form showing that. But if they had originally paid $1,000 for the bike, they likely wouldn’t owe the IRS.
“This is not about skirting tax obligations,” said Katie Vlietstra, vice president for government relations and public affairs at the National Association for the Self-Employed.
“A lot of people are cobbling together different ways to make it to the next paycheck,” she said.
“And this is going to be whiplash for a whole community of people.”
This blog originally appeared at Politico on March 5, 2021. Reprinted with permission.
About the Author: Brian Faler is senior tax reporter at Politico. Before coming to Politico in 2013, he was a congressional reporter at Bloomberg News. Before that, he was an assistant to the late, great David Broder at the Washington Post.