Quote from Savings Beagle on March 15, 2021, 3:25 pm

The 2021 Covid relief/stimulus bill is a much-needed lifeline for some, a provider of a nice-to-have chunk of money for others, and a way to bilk the government out of millions for a select few.  But did you know the bill also includes a tax increase?

This doesn't surprise me.  Having worked on a number of funding bills over the years, that's standard operating procedure.  Huge budget bills are a fantastic opportunity to include potentially controversial or unpalatable policy changes.  Which is likely why these seemingly innocuous few lines of U.S. Code were included in this bill and not in a more obvious piece of legislation.

I warned in my 2021 Covid relief/stimulus bill overview that "True, most Americans will receive a significant amount of financial benefit from this legislation – even though some don’t really need the largesse being provided – but whether that will offset the long-term costs this bill, and those to come, will push onto working-class Americans remains to be seen."

I was vaguely aware of the tax increase provision, but at the time didn't think it would potentially affect such a wide swath of individuals.

So, who should be aware of this tax increase language?

It appears, anyone who works as a gig worker (Uber, Etsy, Airbnb, etc.) or sells products on eBay or utilizes services such as PayPal, Square, Venmo and the like to collect payments, needs to be aware of this significant change to the tax law.

Prior to this change, third party settlement organizations (examples listed above) didn't have to report payee information to the Internal Revenue Service (provide a 1099-K) until transactions exceeded $20,000 and the aggregate number of transactions exceeded 200.

The language change in the 2021 Covid relief/stimulus bill significantly lowers the reporting threshold transaction dollar amount to $600 from the previous $20,000.  

You can view the bill's language regarding this change here.

As with many legislative changes, the actual language can be hard to discern without knowledge of that specific code section.  Here's an IRS informational document on payment settlement entities which may help with definitions and general guidance on who may be impacted by this change.  The reporting requirements in this informational document - both dollar amount and number - reflect previous and current law, not the changes included in the Covid relief bill.

Unfortunately, it looks like a wide variety of Independent Contractors, gig workers, etc., who may have earned less than $20,000 as a result of their work, and thus didn't have it reported to the IRS, will now be required to include amounts $600 or more in their tax filings and pay the appropriate tax once this language goes into effect.

Which, according to the bill's language would "apply to returns for calendar years beginning after December 31, 2021."

I'm not a tax accountant, so whether this change will pertain to you and your earnings is something you'll need to discuss with a tax professional or the third party settlement organization through which your payments are made.

Likely, many of these payment providers are just learning about this change themselves, and are scrambling to determine exactly how this change will affect them.  Significantly more paperwork will be one way, for sure.

It's interesting that the Democrats included such a change to the tax law considering many of the individuals most affected will be lower to middle-income workers. 

But, the federal government is on the hunt for revenue, and while much talk surrounds "taxing the rich," the reality is the majority of money is in the middle-income section of America as a result of the large number of taxpayers falling into that category.

As more spending bills are introduced and move through this Congress, expect more tax increases - either directly or indirectly - to come to all levels of taxpayers.