A Lowered Federal 1099-K Threshold Gains National Attention

Wendy Walker
June 10, 2020

The Coronavirus pandemic revived a longstanding debate amongst lawmakers about what unemployment benefits to provide to independent contractors and how to decrease the underreporting of income.

Chairman of the Senate Finance Committee’s Taxation and IRS Oversight Subcommittee, John Thune, believes simplifying tax requirements would ensure that self-employed workers report accurately, pay all taxes owed and qualify for pandemic relief.

Specifically, Thune proposed a plan in S. 700 that requires either a Form 1099-K or Form 1099-MISC to be distributed to self-employed workers when their earnings exceed $1,000. This new, lowered threshold would replace the current 1099-K threshold of $20,000 in earnings and 200 transactions.

Several large online platforms, including Lyft and Airbnb have encouraged Thune’s efforts to lower this threshold and simplify reporting.

Caroline Bruckner, a tax professor at the American University Kogod School of Business, said recent action taken by states to lower their 1099-K reporting thresholds could influence the federal government to follow suit.

In the last six months, the following states have lowered their 1099-K reporting thresholds:

Illinois – $1,000 threshold paid over 4 transactions.

Virginia – $600 threshold and no transactions.

Maryland – $600 threshold and no transactions.

Florida – a no-income tax state where there was no state 1099 reporting changed the law to require the 1099-K to be reported directly at the federal thresholds.

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Author

Wendy Walker

Wendy Walker is the principal of Tax Information Reporting solutions at Sovos. She has more than 15 years of tax operations management and tax compliance experience with emphasis in large financial institutions, having held positions with CTI Technologies (a division of IHS Markit), Zions Bancorporation and JP Morgan Chase. Wendy has served as a member of several prominent industry advisory boards. She graduated with a BS in Process Engineering from Franklin University and earned her MBA from Ohio Dominican University, in Columbus, Ohio.
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