Online marketplaces are essential partners to small businesses, craftspeople, and budding entrepreneurs. Sharing economy companies have also emerged as facilitators for Americans to share, and profit from, their time and resources – whether it’s a ride across town or a stay in their home for travelers. Internet-based marketplaces and sharing economy sites play a real role in supporting their users’ livelihoods. On Etsy, for example, sellers average $100 to $200 in monthly sales – earnings that can cushion their savings, stretch their income a little further each month, and provide vital support for those who have lost jobs during the pandemic.
However, a new reporting requirement passed in March as part of the American Rescue Plan will dramatically complicate the lives of the Americans that use these sites if it goes into effect in a few short months. This requirement drastically lowers the threshold for third-party platforms to issue a Form 1099-K from $20,000 and an aggregate of 200 transactions to just $600 on any number of transactions, impacting almost every seller who transacts online.
For the one-fifth of Americans that sell things online, this will create operational, financial, and usability challenges. In fact, some Americans may even overpay in taxes due to the confusion this rushed reporting requirement will sow. Do we really want to mandate additional headaches and risk noncompliance when filing taxes for folks just trying to clear out clothes from their closet? This unnecessary and burdensome requirement for consumers serves no policy goal, and is a glaring example of the unintended consequences of the lowered threshold that will sweep in seasoned and casual sellers alike.
There are also very real privacy concerns with this requirement. Platforms will now have to gather and maintain extensive amounts of sensitive information on their sellers. Those who hope to simply sell via online marketplaces or pick up a few shifts driving rideshare will have to share their social security numbers and addresses. And while online platforms are already diligent stewards of users’ personal information, this may open up sellers to a new form of phishing attack in which some may inadvertently reveal their information to malicious third parties posing as online platforms. Many sellers are understandably apprehensive about providing the personal information required under this new law.
Further, despite the rapid implementation date of January 1, there have been no public awareness campaigns issued by the U.S. Treasury Department, the Internal Revenue Service (IRS), or any other government agencies. As a result, some sellers may be compelled to turn to expensive tax experts for advice, or overpay due to lack of proper instructions for individual filers. Taxpayer education should not be left to private companies alone without clear public guidance from the government. At the very least, there will be widespread confusion with new requirements; at worst, unnecessary tax penalties will be levied on regular Americans.
All of this will discourage many, especially casual participants in online marketplaces, from utilizing the sharing economy, which has been a lifeline for those looking to supplement other income, meet mortgage or rent payments, or simply receive monetary compensation for creative endeavors. On behalf of Internet Association’s (IA) member companies, and the tens of millions of users who rely on their platforms, we urge Congress to immediately delay the effective date of the new 1099-K reporting requirements – currently set for January 1, 2022 – by one year.
Our economy is fundamentally transforming to become more virtual than ever, but also more accessible than ever. Talented craftspeople and those with unique skills are able to share their abilities with buyers from across the country with the help of online marketplaces and internet platforms. This burdensome new requirement will add new costs and headaches to the independent sellers, entrepreneurs, and small businesses reliant on the sharing economy—potentially blocking them from these opportunities entirely.