Massachusetts has become the first state to take action toward collecting tax money lost in the sharing economy. The commonwealth recently lowered the threshold for reporting income on the 1099-K to a level far below federal requirements.
Sharing-economy companies that are third-party settlement organizations (TPSOs) use form 1099-K to report payments to non-employee service providers. According to the IRS, a TPSO is an online auction-payment facilitator, which operates as only an intermediary between buyer and seller by transferring funds between accounts in settlement of an auction or purchase.
The federal threshold for 1099-K reporting is surprisingly high: A 1099-K is only required if a service provider has logged minimum of 200 transactions and earned at least $20,000 in a tax year.
An Immediate Change
Massachusetts, in an attempt to collect taxes on potentially thousands of service providers who do not meet that requirements, has lowered the threshold to just $600 with no minimum number of transactions.
The kicker for sharing-economy organizations is that Massachusetts is not offering a grace period for its new requirement. Companies have to report retroactively for all of Tax Year 2017, and the deadline for filing forms with the state is January 31, 2018.
A Sign of Things to Come
In moving so far away from federal requirements, Massachusetts is beginning what is likely to be trend of states, and possibly the federal government, seeking to close the tax gap in the sharing economy. Vermont is pursuing a similar provision, and heavy hitters such as California and New York are likely not far behind.
There is action on the federal side as well. Two separate bills with bipartisan support House and Senate committees would lower the 1099-K earnings threshold from $20,000 to $1000 and eliminate a minimum number of transactions.
For now, though, sharing-economy companies will have to scramble to meet the new requirements in Massachusetts.
Find out how Sovos can come to the rescue with 1099-K reporting and many other 1099 compliance issues.
About the AuthorMore Content by Gerry Nelligan