In both the House and Senate, Congress is looking to change the thresholds for Form 1099-MISC and Form 1099-K reporting.
Form 1099-MISC, which is used to report miscellaneous income, currently has a general threshold of $600 with some exceptions (e.g. royalties of $10 or more, or direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment). This $600 threshold has been in place since 1954.
Form 1099-K, which is used to report Payment Card and Third Party Network Transactions, currently has a threshold for third party network transactions that requires reporting only when gross payments exceed $20,000 and when there are more than 200 transactions. This high threshold creates a “gap” where many people who meet either requirement do not have to file because they do not meet both requirements.While this “gap “exists for third party network transactions, it should be noted that there are currently no limiting thresholds for payment card transactions.
The two bills that are seeking to change the thresholds for these forms are Senate Bill 1549, otherwise referred to as the “NEW GIG Act of 2017,” and House Bill 3717, otherwise referred to as the “Small Business Owners’ Tax Simplification Act of 2017.”
The NEW Gig Act of 2017 would raise the reporting threshold for Form 1099-MISC from $600 to $1000, and it would lower the reporting threshold for Form 1099-K from $20,000 to $1,000. The bill was introduced on the Senate floor in July and is currently in the Senate Finance Committee.
The Small Business Owners’ Tax Simplification Act of 2017 would raise the reporting threshold for Form 1099-MISC from $600 to $1500. Additionally, it would lower the reporting threshold for Form 1099-K from $20,000 to $1500 and remove the transaction threshold reporting requirement. Unlike the NEW GIG Act, the House Bill has bipartisan support as it has cosponsors from both sides of the aisle as four Republican cosponsors and two Democrats are cosponsoring the bill. This bill was introduced on the House floor in September and is currently in the House Ways and Means committee.
The impact of the lower 1099-K threshold would be significant as it would create new reporting responsibilities that would not have existed previously and have a big effect on ride-sharing companies as their drivers are not paid directly. Instead, these companies are considered third party networks, meaning that they facilitate the driver’s ride-sharing business by finding the driver passengers and transferring payment between the passengers and drivers. Furthermore, online sellers who use virtual marketplaces and accept payments via online payment processors, which are also considered a third party network, would be affected by the lowered 1099-K threshold as well.
While the 1099-MISC threshold change would not be as dramatic as the 1099-K threshold change, it could still have a big effect for a lot of companies that use independent contractors for smaller one-off projects or situations. With the higher threshold these companies may not have to report as many independent contractors as they had before.
Given the potentially large impact that these threshold changes could have for information reporting requirements, it’s certainly important to keep track of this pending legislation.
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About the Author
Adam Rivera is a member of the Regulatory Analysis Team's Direct Tax division at Sovos. His main areas of focus are Federal and State Tax Withholding and Affordable Care Act (ACA) Reporting. Prior to Sovos, Adam worked as a legislative aide in the Florida House of Representatives. He also has experience in securities law, focusing on securities litigation and researching emerging crowdfunding methods of raising capital. Adam is a member of both the Massachusetts and Florida Bars. He earned his B.A. from the University of Florida and his J.D. from the University of Miami.More Content by Adam Rivera