Congress seems to be in a bit of a scramble these days to find new ways to raise revenue in light of the proposed Trump tax cuts. In a new proposal last week, Republican Senator John Thune introduced a bill that would specifically target the “sharing economy”. If you are anything like me then you may be asking yourself, “What is the sharing economy?”
The sharing economy is becoming a huge part of our everyday lives. Think of any peer-to-peer rental in which people rent houses (or just beds), cars, boats, etc. The most popular share firm is Airbnb, where you can chose a room provided by a private individual and pay for everything online. There are also peer-to-peer businesses like Ebay and Etsy which allow anyone to become an online retailer. Uber and Lyft provide a platform for a peer-to-peer driving service. The peer-to-peer market alone is worth an estimated $26 billion and growing.
So what’s the big deal? Well, federal rules currently don’t require such companies to withhold any income taxes on the payments they route to people who provided services or sell items via their online platforms. It is estimated that 60 percent of sharing economy workers don’t receive any forms, such as 1099s, that would notify the IRS of their earnings. Technically, they should be reporting all income earned as an independent contractor whether or not they receive a form. The amount that actually do….????.
This new proposal tries to close the gap here. It would require sharing economy companies to withhold 5 percent of contractors’ payments and deposit those payments with the IRS. Also, this new proposal would lower the reporting threshold to $1,000 for sharing economy companies who currently have to notify the IRS about earnings only if they are in excess of $20,000 (applies to credit card payments only).
Another provision in the new proposal would ease the reporting requirements for other, more traditional, independent contractors. Businesses would only have to report payments that total more than $1,000 a year, instead of the current rule of $600 a year. This bill is said to be quite “balanced” as it provides some help to small business owners and encourages entrepreneurial pursuits.
Thune’s proposal is under serious consideration and has received a detailed examination from the Joint Committee on Taxation (JCT). The JCT is responsible for evaluating the cost of tax legislation and is rather eager to tackle issues related to independent contractors, which has always been a problematic area for regulators.