• Growing workforce not familiar with IRS rules
• Tax code changes could ease nerves
Gig economy workers often panic when they receive an IRS notice about a mismatch of tax information, practitioners told Bloomberg BNA.
“Relax. Take it easy,” are the first words enrolled agent Bryan W. Lake tells clients when they receive the CP2000, a notice the Internal Revenue Service sends when income and payment information in the agency's file don't match the amounts reported on an individual's tax return.
These individuals are part of a growing segment of the labor market, but aren't knowledgeable about the tax rules for the income earned as sellers on eBay and Etsy, short-term rental hosts for Airbnb, or drivers for Lyft and Uber. The IRS classifies them as self-employed or small business taxpayers.
Sixty percent of enrolled agents surveyed by the National Association of Enrolled Agents said the top reason the IRS sends a CP200 notice is the taxpayer's failure to report income earned as an independent contractor for on-demand services.
“These independent contractors are required to maintain accurate records on payments received from multiple clients and file accurate returns or face steep penalties,” the NAEA said in a July 31 release.
Tax professionals can help taxpayers, Friday Burke, president of Dr. Friday Tax and
Financial Firm Inc., said, since the IRS just needs additional information to reconcile
the mismatched records.
Some companies also provide tax assistance. For example, Chelsea Harrison, senior policy communications manager for Lyft, told Bloomberg BNA that the company provides their drivers with Forms 1099-MISC, Miscellaneous Income, and end-of-the-year end summaries they can use with their tax filings.
Lyft and TaskRabbit have also partnered with Intuit to help with the tax filing process.
“Drivers can receive QuickBooks Self-Employed for free and TurboTax Online at a largely discounted rate,” Harrison said.
Meanwhile, National Taxpayer Advocate Nina E. Olson is working on an online “wizard” that leads gig economy workers through the steps they need to take to accurately file their taxes.
“The wizard is still a work in progress, and we'll probably do focus groups to test and refine it,” Kenneth P. Drexel, a spokesman for the IRS's Taxpayer Advocate Service office, said in an email.
In addition, the IRS last year launched an online resource center for workers in the gig economy, following a House Small Business Committee's May
2016 hearing on the same topic.
It's unclear whether the existing tax code meets the needs of this growing population of taxpayers. “We have a social safety net and a tax system that's currently designed for a more traditional form of work,” Ethan Pollack, associate director for research and policy at the the Aspen Institute's Future of Work Initiative, said in an interview.
A 2016 report by American University's Kogod Tax Policy Center estimates that more than 2.5 million taxpayers perform independent work every year, but the existing rules create a “$19,399 reporting tax loophole.” It comes from the differences in income thresholds on the Forms 1099-K and 1099-MISC, causing “widespread confusion” among taxpayers, the report said.
A proposal by Senate Finance Committee member John Thune (R-S.D.) could make a difference. The NEW GIG Act of 2017 (S. 1549) would lower the reporting threshold for a sharing company's gig income to $1,000 from $20,000—if workers can meet “safe harbor” criteria to demonstrate they aren't full-time employees at the company, according to a July 13 release.
Caroline Bruckner, director of the Kogod Tax Policy Center and primary author of the report, said Thune's proposal is “pretty aggressive.”
“It's the requirement of a written agreement that includes withholding as a condition of qualifying for the safe harbor. That's a big deal,” she said.
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