Ryan Ellis
The leaders of over 70 conservative and free-market organizations today sent a joint letter to the chairmen and ranking members of the House Ways and Means and Senate Finance committees.
The letter raises the urgent issue of 1099-K information reporting. If Congress doesn't act before the end of the year, millions of unwitting teenage babysitters and lawn mowers, college student tutors, people selling junk from their garages and basements, roommates splitting rent, and friends sharing bar tabs will get a new (to them) "1099-K" form from their payment processor.
With the IRS ready to hire 87,000 new auditors (and unable to do simple customer service tasks like answering their 800-number), this is the wrong time for the IRS to see every new jot and tittle of your financial life.
(Letter text below)
We write today to urge you to address a major tax reporting issue that will
needlessly burden middle class and lower income Americans with confusing IRS
forms, leading to a nightmare tax filing season and taxes paid in excess of actual
liability.
Congress passed H.R. 1319, the “American Rescue Plan of 2021” last year. That
nearly $2 trillion spending bill contained a provision to alter the reporting rules for
IRS Form 1099-K. The purpose of a 1099-K form is for credit cards and other third
party payment processors to report to companies income that flows from
customers, through transactors, and to businesses.
Under the prior law, a 1099-K was issued only in the event that a business charged
customers at least 200 times in a year, and $20,000 in the aggregate. H.R. 1319
eliminated the 200 transaction threshold entirely, and lowered the dollar hurdle to
just $600. As a result, both very small business ventures and unwitting non-business
taxpayers have found themselves caught in the 1099-K reporting net.
Millions of Americans who have never received a 1099-K form before, and don’t
know what to do with it, will get one. If they seek help from the IRS, they will quickly
run into an overwhelmed agency trying to process this gusher of new 1099-K
returns, keep up with filing season, clear out prior backlogs, respond to
correspondence, and even answer the 800-number telephone line.
Examples of taxpayers who will newly receive a 1099-K form include:
Occasional teenage babysitters and lawn mowers
College students tutoring high schoolers
People clearing out old garage and basement items on selling platforms
Roommates and couples splitting rent, vacation, or restaurant tabs
Sporadic vacation home renting
Rideshare drivers with even one mile of business
Taxpayers receiving a 1099-K may not know what to do with it, and may be apt to
ignore it on their tax return. Doing so will result in the IRS assessing tax on the full
amount found on the 1099-K, even if the taxpayer has basis or business expenses
that would reduce or eliminate the ultimate amount of tax owed.
The new 1099-K rules are a textbook example of how a well functioning tax system
must have tradeoffs between complexity and enforcement. This targeting of
Lilliputian pockets of income will result in bad outcomes for taxpayers, 1099-K
issuers, and the IRS. It will fuel illegal and cash economy transactions which often
lead to more serious crimes.
Congressional policymakers have several bills before them to restore the old 1099-K
thresholds, or at least greatly increase them from where they are now. We urge you
to consider and adopt these policies before the end of this Congress and the next
tax filing season.