As our colleague Nick Anthony writes, the IRS in late-December postponed a new rule requiring Americans to report to the IRS gross annual online sales (including taxes, fees, canceled orders, or even the nontaxable resale of goods at a loss) of as little as $600 – considerably lower than the current reporting threshold of $20,000 in payments and 200 transactions. As Nick notes, the new requirement (reported primarily on IRS Forms 1099‑K and now punted to next year) constitutes a major invasion of Americans’ financial privacy.
As we explain in a chapter of the new Cato book, Empowering the New American Worker, the rule will also impose significant costs on a growing segment of the American workforce – the millions of Americans who earn supplemental income via cash apps like Venmo or third party sales platforms like Craigslist, E‑bay, Etsy, or Uber. As the chapter details, these types of independent “side-hustles” are increasingly common. In fact, new data from MBO Partners finds that there were over 64 million independent workers last year, a 26 percent increase from the then-record 51.1 million figure in 2021. MBO further reports that about half of those individuals (i.e., nearly 32 million Americans), were occasional or part-time independent workers – a number that’s more than doubled since 2020.
(Also noteworthy from the new MBO Survey: 4.4 million independent workers earned more than $100,000 last year – contrary to the common view of contract work being all low-paid “gig” work.)
That the IRS delayed the 1099‑K rule (to “reduce confusion” and give taxpayers time to “prepare and understand the new reporting requirements”) is a testament to its burden – on workers, companies, and the IRS itself. Many lawmakers have also realized this fact, belatedly (and unsuccessfully) trying to amend $600 reporting threshold in waning days of the 117th Congress. Congressional Republicans earlier introduced bills to return to the previous threshold of $20,000 and 200 transactions, and even some Democrats, who voted for the American Rescue Plan, introduced a bill to raise the threshold to $5,000.
So, the IRS took matters into its own hands, recognizing – following a deluge of industry and stakeholder comments – just how intrusive, messy, and unpopular the $600 reporting threshold would be. Legality of the agency’s unilateral action aside, this delay is surely welcome news for millions of Americans who would’ve been subject to the new reporting requirements and potential fines for non-disclosure (assuming they were even aware of the change at all).
However, the IRS announcement merely punts on the issue: Congress still needs to reform the underlying requirement to relieve this needless and intrusive burden on American taxpayers. In our book chapter, we propose changing the 1099‑K reporting threshold to a level that would more likely capture income from true online retailers and gig economy workers, while sparing occasional sellers or re-sellers (e.g., a revised threshold of $5,000 and 25 transactions). Doing so would save millions of Americans from tax reporting hassles and other financial and privacy burdens, simply for selling their used sofas on Craigslist.
