By: Diane Ring
Sharing economy and other platform workers are frequently classified as independent contractors and bear many of their own costs. Thus, these workers whom we don’t think of as “small businesses”—and don’t really think of themselves as small businesses—are thrust into the exciting world of quarterly reporting and calculation of proper deductions. Exciting if you are a tax lawyer, but less so if you are making limited income and are facing daunting tax compliance requirements. Despite these compliance challenges, there has not been much movement in responding to the tax challenges faced by sharing economy workers. These observations about the sharing economy sector have been around for a while; they were the focus of two forthcoming articles by my co-author, Shu-Yi Oei, and me (Can Sharing Be Taxed? and The Tax Lives of Uber Drivers: Evidence from Internet Discussion Forums).
Yesterday, a new report coming out of American University echoed our observations and findings. Caroline Bruckner of the Kogod Tax Policy Center presented testimony (and a supporting report) to Congress regarding the size and scope of worker participation in the sharing economy. Her goal was not to provide a definitive calculation nationwide of sharing and platform workers, but to offer a solid sense of the scale of participation in the sector (more than 2.5 million individuals) and note important growth trends. Based on the percentage of the American workforce active in the sharing/platform sector, she urged more government attention to reform that would address the tax compliance and administration challenges in this sector.
Will Congress and Treasury/IRS respond?
The answer in part depends on how easy the solutions are and how strong the opposition might be. Shu-Yi and I previously made a number of concrete recommendations, some of which should be relatively easy to implement at the administrative level without tremendous push back from industry or others. Those include: (1) more explicit industry-based IRS guidance to sharing workers (e.g., ride sharing drivers) that answers common questions (For example: What typical driving expenses can be taken with the standard mileage method? What kinds of documentation for mileage are acceptable?); (2) guidance on how to read and use a Form 1099-K that one has received; and (3) clarification of the IRS view on which entities must issue 1099-Ks and what dollar/transaction volume thresholds apply. Some of our other recommendations require Congressional action and/or would likely be a little harder to implement. For example: (1) introduction of expense deduction safe harbors by industry (building on the idea of the standard mileage deduction), (2) lower reporting thresholds for Form 1099-K; and (3) reconsideration of the system for quarterly reporting as applied to sectors of the economy characterized by large numbers of small-scale taxpayers entering and exiting quickly. Yesterday’s testimony will probably not be sufficient to prompt immediate action on the latter group of our reform recommendations. Hopefully, though, it can jumpstart a serious examination of these options.