As touted over the last few months, the NASE is encouraged and excited to see the number of new business starts, however, we know that a number of people who end up as business owners (i.e self-employed) often start their business journey through side gigs or “hustles”. In fact, according to a new LinkedIn report, the number of Americans with a side gig is now estimated at 50%. However, a new tax law change could stop this growing trend and jeopardize the ability of people to earn extra income or chase their dreams of becoming an entrepreneur.
The change involves the Internal Revenue Service (IRS) Form 1099-K which ensures that business income is reported accurately. The form is used to report payments and transactions from online platforms, apps, or payment card processors, including those received as a gig worker, freelancer, or an independent contractor. Initially, the threshold for reporting income was $20,000 in aggregate payments and 200 transactions annually. Congressional lawmakers significantly decreased that reporting threshold in the American Rescue Plan Act of 2021 (ARPA).
The new threshold is reached with only $600 in payments and there are no minimum transactions. The NASE strongly opposed this change as we have continued to advocate and support efforts to simplify and streamline tax filings, especially for the self-employed, micro business owner.
We know, filing taxes is already a complex and confusing process for many taxpayers With many people unaware of the decreased threshold for 1099-K reporting, many entrepreneurs will receive this new tax form and be further confused as to how this could impact their tax liability.
Legislation has been introduced in the House and Senate to address the new reporting threshold. In the House, the Cut Red Tape for Online Sales Act would raise the threshold to $5,000 while another introduced in the Senate—the Red Tape Reduction Act—would raise it to $10,000. The NASE strongly supports these important pieces of legislation.
Whatever direction Congress decides to take, it must start on the path now. The reprieve given by the IRS delaying implementation for a year, is quickly approaching its end. Action is needed soon; otherwise, we might just miss the next great entrepreneur.