Congress has introduced a $1.7 trillion spending bill to fund the federal government for the rest of the fiscal year. The whopping price tag is outmatched only by its length: an eye-popping 4,155 pages. Despite all of the lobbyist priorities, goodbye giveaways to departing lawmakers, and woke earmarks, Congress missed an opportunity to provide tax reporting relief for households.
By not repealing or delaying President Biden’s new IRS tax reporting requirement on online sales, Congress failed to help regular taxpayers — especially moms and minority families — who are set to get a tax headache for Christmas.
Absent from the tax provisions in this mammoth bill was any effort to address a real tax nightmare for millions of Americans. In 2021, liberals in Congress lowered the threshold that triggers income reporting for third-party transactions on IRS Form 1099-K from $20,000 in sales and 200 transactions to just $600 through any number of transactions.
As a result, some 30 million to 50 million IRS 1099-K forms will be sent to households across America to report any income earned from selling items online. These are sales of used kids clothing on eBay, old sofas on Let Go or concert tickets on StubHub. Payments from babysitting the neighbors’ children or tutoring students, and even reimbursing friends for dinner out, could all trigger the reporting requirement if the payments were made on platforms such as Venmo, PayPal and CashApp.
The ramifications of not reporting this income could lead to the IRS demanding payment for taxes owed. Some transactions may not be taxable, such as selling used exercise equipment at a loss. But good luck trying to prove your innocence to the IRS if you cannot produce proof of the item’s original price.
For casual sellers who regularly sell items, such as mothers making extra money for the household, this new reporting requirement could lead to financial loss. People respond to incentives and penalties. Casual sellers overwhelmingly say that they will stop selling items online because of the reporting requirement. According to a survey by the 1099-K Coalition, most casual online sellers are not engaged in reselling or recommerce as their primary income source but earn extra income for necessities such as food, shelter and medicine.
Furthermore, disproportionately more Black and Hispanic casual sellers depend on online selling to fund necessary expenses. The left claims to represent the interests of racial minorities and working-class families, but limiting legitimate income-generating opportunities for them is a funny way of showing it.
A Democratic-led Congress lowered the reporting threshold to raise revenue for Mr. Biden’s inflationary $1.8 trillion American Rescue Plan. This bill fueled inflation to a 40-year high of 9.1% this year. So, on one hand, the left’s policies fueled higher prices on necessities, forcing families to look for new ways to make ends meet. On the other, liberals are making these income-generating means negligible or not worth it.
Casual sellers have good reasons to be concerned: Greater confusion over filing tax returns and attempting to comply with the new reporting requirements will cost them time and money. Americans already spend more than 6.5 billion hours complying with current IRS tax filing and reporting requirements. Imagine how that will rise with this new Form 1099-K reporting requirement. That represents time away from family or other income-generating opportunities. Furthermore, there’s uncertainty about whether one will be on the hook for a bigger tax bill.
The IRS is already beleaguered, coming off a woeful tax season, and this new reporting mandate will bury the agency in an avalanche of new paperwork. The agency began the tax season with a backlog of 8 million tax returns. Some 86% of calls to the IRS went unanswered last tax season, and the agency’s website — when working — was unhelpful in answering simple questions. Now, add to this, fixing potentially millions of tax returns to address this reporting issue. It will require added resources and delay the processing of tax returns.
Several bills have been floated by Republicans and Democrats to raise or repeal the Form 1099-K reporting threshold to save hardworking families from unnecessary government red tape and perhaps an unwarranted tax bill. Even a last-ditch effort to delay the requirement while a new threshold could be negotiated was scrapped. If this omnibus bill signals the priorities of this Congress, what message are lawmakers sending to struggling households?
• Patrice Onwuka is director of the Center for Economic Opportunity at Independent Women’s Forum (iwf.org/CEO).