Patrice Onwuka joins the podcast to discuss this month’s policy focus: the IRS. The 1099-K tax form may lead to increased confusion and even a higher tax bill for you this year. If you’re one of the millions of people who resell items online or use gig platforms to supplement your income, we discuss how much you may owe on Tax Day.
Patrice Onwuka is the director of the Center for Economic Opportunity at Independent Women’s Forum. Patrice co-hosts WMAL-FM’s morning show O’Connor & Company, the leading talk radio station in the DC area every Friday. Patrice is also a senior adjunct fellow with The Philanthropy Roundtable and a Tony Blankley Fellow at The Steamboat Institute. Patrice has worked in policy, advocacy, and communications roles in Washington, D.C., for more than a decade on issues related to the economy, employment, technology, philanthropy, and the criminal justice system.
TRANSCRIPT
Beverly Hallberg:
And welcome to She Thinks, a podcast where you’re allowed to think for yourself. I’m your host, Beverly Hallberg, and on today’s episode, it’s our Policy Focus, and this month, we are talking about everyone’s favorite government agency, the IRS. And specifically, on what is known as Tax Form 1099-K, which may lead to increased confusion and even a higher tax bill for you this year. So if you’re one of the millions of people who resell items online or use gig platforms to supplement your income, you may be surprised how much you owe on tax day.
So it’s an important topic, and we have the perfect person to break it all down. She’s the author of this month’s Policy Focus, Patrice Onwuka. Patrice Onwuka is the Director of the Center for Our Economic Opportunity at the Independent Women’s Forum, and she co-hosts WMAL’S Morning Show, O’Connor and Company, the leading talk radio station in DC. She is also a Senior Adjunct Fellow with the Philanthropy Round Table and a Tony Blankley Fellow at The Steamboat Institute. Patrice, always a pleasure to have you on the program.
Patrice Onwuka:
Ah, it’s great to be on, Beverly. Thanks.
Beverly Hallberg:
And while we will break it down here, I want to let our listeners know that you can find the Policy Focus on iwf.org. It is called Repealing Burdensome IRS Form 1099-K Reporting Rules. So you can find it online, but my first question to you, Patrice, is: First of all, explain to us what Form 1099-K is.
Patrice Onwuka:
Absolutely. So Form 1099-K is a form that where you report any sort of income that you make, whether it’s from selling items or even earning income through app-based services, gig work, in the gig economy. So typically, this form is used for people who have small businesses online, selling items, or maybe they’re independent contractors, and they need to report some of their income.
What happens is that this form is sent to you by the company, or I won’t call them the employer, but the person who’s hired you for your services or the apps where the transaction occurred. So if, let’s say, you sold some shoes on Etsy, and you hit a certain threshold, then Etsy might send you a form in the mail, that 1099-K form, and they’re also sending one to the IRS or perhaps another state agency, to say, “Hey, Patrice did sell this. This is the income that we are reporting. She should be reporting it to you on her taxes.”
Beverly Hallberg:
And we’ll get into a little bit more of the specifics as we talk, but first of all, this is new. So this is something that was instituted by the 2021 so-called American Rescue Plan. Why was this instituted? Do they think a lot of people who are selling things online are tax cheaters? What was the impetus for this?
Patrice Onwuka:
Well, actually, you’re right. The idea was that there’s a huge tax gap, and the IRS is missing opportunities to generate revenue for the federal government from people who they considered tax cheats. And by they, it was the Democrats in Congress at the time. And so the 1099, there are a ton of these different 1099 forms. This K form has been around for a little bit of time, but the difference is that before, you wouldn’t get this form in the mail unless you sold $20,000 or 200 transactions, and most people do not sell that much money, unless they really do have a legitimate online business.
Well, in 2021, the Democratic-led Congress changed that threshold from $20,000 to just $600, just 600. I mean, think about it: You could sell a couple of pair of shoes, maybe some old baby furniture, maybe some exercise equipment, and you can hit that $600 threshold really quickly. Or maybe you’re a babysitter, and you use an app to find kids that need to be babysat in the neighborhood. It’s not a full-time job, but you can certainly hit that kind of income over the year, even over a couple of months.
And so suddenly, millions of people potentially would be getting these 1099-K forms in the mail, saying that you need to report this income to the IRS, come tax season, and it would have been this tax season. Had Congress not acted, and unfortunately, by the end of last year, they did not act, so we were left in a limbo.
Beverly Hallberg:
And so I want to talk about the reselling of items. So first of all, $600 does not go very far at all, especially with inflation. So are you talking about if somebody wanted to sell something on Facebook Marketplace, let’s say, and they did the transaction, let’s say, through Venmo, with the person who purchased it, and they did that enough to get to that minimum of $600? Is it that the IRS even is seeing those transactions, as well? How deep are they going into this?
Patrice Onwuka:
They are. So everything from Mercari, Etsy, eBay, Venmo. A lot of these transaction-based platforms would have had to report that income, once that $600 threshold was hit. A great example: I had a pair of high-end shoes that I sold on Mercari, and I was like, “Woohoo! Somebody wanted to buy them,” and before they would allow me to process the transaction and send it off in the mail, I got a screen asking for my name, my Social Security number, and it was for tax reporting reasons. And I’m like, “Whoa, wow, this is really happening.” And I knew it hit me, and so I’m sure it hit a lot of other people.
But absolutely, the IRS has the resources and will require these third-party vendors or applications to get this information and then pass it on to the IRS, but also to send us, the sellers or the workers, the same 1099-K forms that we would report it. Now, you can imagine: This would be a massive stack of paperwork heading to the IRS. It would cause huge confusion, and it would have been a headache and potentially a tax bill for some people.
Beverly Hallberg:
And so to clarify my mistake up front: So this will be starting this year, meaning anything you do this year and then come April 15th or whatever the actual day is that we have to file next year, in 2024, that’s when you would have to account for it. But this is the year that people will start seeing those notifications that you just mentioned, and here’s one of the concerns I have as you talk about that. What about privacy concerns? The reality is, hacks can happen. People want to steal your identity. If you’re asked to put your Social Security number in order to make a transaction, is this rife for people stealing your identity?
Patrice Onwuka:
That’s a really good point, and Beverly, don’t worry about the confusion on the timeline. What happened is that this would have gone into effect with this reporting tax year. So when you sit down to do your taxes this year, you would have had to reported that income on your 1099-K. But at December 23rd, right before Christmas, the IRS unilaterally decided to delay — not end, but delay — this reporting requirement for one year. So more than likely, unless Congress steps in and changes this or the IRS delays it again, this will affect the next tax season, meaning starting this year, you’ll start to see that reporting requirement.
But yeah, I think there are a lot of different concerns, whether it’s from the privacy issue, as you’ve set up, as you’ve talked about. I mean, let’s be honest: The IRS gains a lot of private, sensitive information about us, but they also fall prey to hacks, leaks, and disclosures that are intentional, sometimes, or unintentional.
But even from the financial standpoint, when you look at the number of casual sellers, and those are the types of people like you and me. We’re selling some items, maybe some kids’ clothes online, whatever the case is, but there are a lot of people who sell casually to make extra money for their family. I mean, inflation is quite high, as we often talk about, right now. So this hurts a lot of moms. It hurts a lot of women who just sell things online, and it hurts people in the minority community, as well, but people who are simply just trying to make ends meet.
And most importantly, in most instances, you’re selling items that have been used, so you’re selling, very often, at a loss. I’ve sold at a loss, but you’re selling it at a loss, and so it’s not necessarily a taxable occurrence. But you might still be confused and think, “Uh-oh, I guess I do owe taxes,” when you don’t necessarily do.
Beverly Hallberg:
Yeah, I think about even how I moved in this past year, and all the things that I sold on Facebook Marketplace and Craigslist. I know not a lot of people use Craigslist, still, but it worked for me. And also using Venmo and those other apps, but yet, there’s this element where even having to have the IRS potentially look at that and try to figure it out for themselves: what is income for you, what they consider legit. It gives them a lot of power in determining how they want to tax you, correct?
Patrice Onwuka:
Absolutely. I mean, audits are very common with the IRS, and very often, an audit simply starts as a piece of paper in the mail with a scary description, saying, “We need to see more records. We need to prove that you sold this item at a loss.” Well, if this happened back in February and you sold a couch on Letgo, and the transaction occurred online, you may not have that paperwork. And so absolutely, you would put a lot of people in the very tough situation of figuring out how they’re going to prove their innocence, so to speak, with the IRS.
I think it would also increase the burden of trying to comply with this rule, so people will probably hire tax professionals to help them sort through all the 1099-K forms and figure out, “Do I owe or don’t I owe?” Just hiring that tax professional is an increased cost for you, as an individual. So there are a lot of different angles here that, frankly, it would have been burdensome for the IRS to process, and absolutely a nightmare for regular people just trying to do their regular taxes.
Beverly Hallberg:
And so for clarification, what you’re saying is that it would only be counted as income if you didn’t take a loss? So is that their determination, as far as when you sell through a website?
Patrice Onwuka:
That’s my understanding, but I am not a tax professional. You would definitely consult with one, but it is my understanding that if you’re selling at a loss, that wouldn’t necessarily be a taxable income. Now, that’s just a piece of every person’s individual tax situation, and I don’t know whatever the other forms of income are, so it would have to be probably a case-by-case scenario. But you can imagine that would be pretty stressful for a regular person trying to figure that out.
Beverly Hallberg:
And this also coincides with the news this past year that an additional 87,000 IRS agents are being added to the IRS, and the narrative for this was this is supposed to go after tax cheats who are in the upper income brackets. But I think most of us look at this and are fearful for ourselves and what this could mean when so many more people are trying to find tax cheats or what they view as a bad actor.
Patrice Onwuka:
Absolutely. Now, to be clear, Beverly, I mean, I don’t think anyone wants to support anyone. We would not support cheating on taxes, but that’s not what we’re talking about here. I think the idea that regular Americans, low-income Americans, middle-class Americans, are somehow hiding their income, when very often, these transactions are probably not taxable to begin with, is really the wrong mindset that Democrats in Congress were really viewing this opportunity to increase some of these taxes through this new reporting.
So yeah, we want people to pay their taxes, and hey, there are lots of great strategies out there to reduce your taxable income that are not cheating, but that are actually legitimate ways of reducing your taxable income. But the idea that just because you don’t have to report it, the threshold is $20,000, so let’s lower it to $600 to get a whole lot more people. That’s the wrong mentality, and I think it looks at regular tax people in a very negative light.
Beverly Hallberg:
Well, I want to take a brief moment to talk to you, our listeners. You may know that Independent Women’s Forum is a leading national women’s organization dedicated to enhancing people’s freedom, opportunities, and wellbeing. But did you know we are also here to bring you women and men on the go the news? You can listen to our High Noon podcast, an intellectual download featuring conversations that make a free society possible. Hear guests like Ben Shapiro and Dave Rubin discuss the most controversial subjects of the day, or join us for happy hour with At The Bar, where hosts Inez Stepman and Jennifer Braceras chat on the latest issues at the intersection of law, politics, and culture. You can listen to past episodes at iwf.org or search for High Noon or At the Bar in your favorite podcast app.
I want to pick up, Patrice, on something you just talked about, and that is that the income requirement prior was $20,000, I believe, is what you said?
Patrice Onwuka:
Yes.
Beverly Hallberg:
What does this do for those who have a side hustle, who are selling a few items, let’s say on Etsy? Let’s say they’re into woodworking and they make chairs or benches, and they were used to being able to do this. Maybe they only sold $15,000 every year. Now, all of a sudden, that’s going to be taxable. What does this mean for them? Are we going to see people leave the market, and are we going to see higher costs for customers?
Patrice Onwuka:
Great question, and this is answered, actually, by a survey that was done of casual online sellers. And the survey was by the 1099-K Fairness Coalition, which is funded by a coalition of corporations. A lot of these third-party sellers like Etsy, like eBay, like Tradesy, you name the list. And they surveyed those casual online sellers, and I’ll give you some really interesting statistics here: 70% of online sellers say they will stop selling online in response to these new requirements. And most of these people are saying they’re earning less than $5,000 in sales, so not very much. Most of them are coming from households earning less than $50,000, which is far below the median household income, and many are from racial minority households, such as African-American and Hispanics. Two out of three people who sell online, they say they’re selling to pay necessary personal expenses like medicine, housing, and clothing.
So when you talk about discouraging income-generating opportunities for people at a time when they need it, inflation is what, still 6 1/2% right now, somewhere along those lines? But they’re looking for ways to supplement their income. It’s not their primary income. They are not a big online business; these are small individual households, just trying to make ends meet. And so this reporting requirement would have had a chilling effect on that casual online selling environment. And a lot of people would have probably thought twice, or frankly, they probably would have gone to the black market of cash. So instead of shipping something in the mail and knowing that it’s secured, knowing that maybe there’s insurance attached to it for both the buyer as well as the seller, you’re meeting up in a mall parking lot, which is pretty unsafe, as a woman. I’ve been there before, so there are unintended consequences for these types of policies, and unfortunately, it would have been one that would have chilled online selling for regular casual sellers.
Beverly Hallberg:
Now, we know we talked about the reason behind this is this narrative that there are people cheating on their taxes. I think this whole narrative that it is against wealthy people is squashed when you take a look at how little you need to sell in order to be taxed at this level. But is part of the reason why we’re seeing the government do this is because our deficits are so high? Our debt is so high. We spend so much, as a government. I know you talk about that quite a bit, and us not being economically sound with taxpayer money. Is this a way for them to just try to find income wherever they can, instead of doing the hard work of cutting back on spending?
Patrice Onwuka:
Well, yeah. Let’s think about what this was used to fund. In 2021, it was used to fund the American Rescue Plan. That was what? About $1.8 trillion of new spending on stimulus checks, on unemployment benefits, bonuses, a sundry list of new forms of federal stimulus that were going out to households that unfortunately led to the spike in inflation. Actually, we didn’t even have much inflation. We had almost deflation, and then that bill came along and spiked inflation.
Well, how is that paid for? In part, through this, by trying to raise taxes through this new reporting requirement. And if you think about it, it’s a backdoor way of raising taxes, because you’re not going out and putting a specific tax on an item or increasing taxes and payroll that people see in their checks. But it’s forcing them to report income, saying to the IRS, “Here, I made this income, but I can prove that it’s not taxable,” and then having to show up with the receipts. And if you don’t have the receipts to show the IRS when they audit you, then you’re stuck with that potential bill. So that’s exactly what this went towards, and it wouldn’t surprise me, Beverly, if we see other types of schemes, these pay-fors, coming down the line.
Now, we do have a new leadership, change of party in the House of Representatives, and hopefully, a lot of these schemes will no longer bubble up. But our debt has hit what, $31 trillion right now? And we’re figuring out how to raise the debt ceiling. This idea of reckless spending and trying to use ways to fund new, unnecessary spending is going to continue to bubble up.
Beverly Hallberg:
And there’s another side to this that I think of, and even as we’re talking about this, there is some gray areas. There’s complexity to this. It’s trying to figure it out, and is the IRS going to see it the same way that you do? Can you prove that you took a loss? And I think that’s a theme of our taxes these days. Instead of taking a look at our tax code, and I think there’s an argument to be said, and plenty make it, that, yeah, it’s fine to get rid of write-offs if we have a simple, straightforward system. Some like a sales tax, or for purchasing goods, just tax that way, so people have a lot of ideas on taxes. Isn’t that just adding so much complexity?
Patrice Onwuka:
It does. Well, and here’s the irony here. You have federal research agencies that were looking at this, assessing this policy and saying, “Wait a minute. Look at the backlog of unreviewed tax filings that the IRS is already dealing with.” I think they went into the last tax filing season with over eight million tax returns unreviewed yet. So talk about layering on a new layer of complexity to potentially tens of millions of new 1099-K forms that now need to be processed as part of individuals’ tax returns.
The IRS answers one out of about every 10 calls during tax season, so good luck trying to call them for answers. I mean, the IRS would be woefully unprepared for a change like this, and frankly, Beverly, in a perfect world, I think a lot of people would say, “Let’s do a simple flat tax,” or “There’s a new fair tax idea, which would be a national sales tax.” There are merits and concerns for both ideas. This is the situation we have. Let’s not, though, add more complexity to our current tax code and our current tax filing situation.
Beverly Hallberg:
And add more hours that you have to pay for, because your tax accountant has to figure all of this out. So I always think about that, too, when anything new is added: “Oh, here’s more hours.” Well, final question for you. As you were just saying, this was pushed to January. Is there any chance that if enough people call their members of Congress, that Congress may take another look at it? So for our listeners who are really concerned, who find themselves in this camp, of, “This is going to really affect my side hustle,” or just another aspect of income they bring in, what do you suggest to them?
Patrice Onwuka:
Absolutely. What’s interesting is that this is one of the few bipartisan areas of agreement last year. There are both bills in the Senate and the House, from both parties, that would have raised the threshold. Republicans generally wanted to raise it back to $20,000, and Democrats wanted to raise it to $5,000. Now, the idea is it needs to be raised, and while we have a one-year reprieve, because the IRS delayed this, this rule can still go into effect, and so I think it’s very important that our lawmakers understand they made this mess. They need to fix this mess.
Beverly Hallberg:
And so, yeah, I think it’s on all of us to call our members of Congress and voice our concerns on many issues, especially this one. Again, I want to remind people that if you go to iwf.org, you will find the policy focus. It is titled Repealing Burdensome IRS Form 1099-K Reporting Rules. So if you need some of that data that we talked about here as some of that ammunition to go call your Congressman, you can go online and see that there. Patrice Onwuka, really good work, as always and really informative. Thank you so much for joining us.
Patrice Onwuka:
Terrific. Thanks for having me, Beverly.
Beverly Hallberg:
And thank you all for joining us. Before you go, Independent Women’s Forum does want you to know that we rely on the generosities of supporters like you. An investment in IWF fuels our efforts to enhance freedom, opportunity, and wellbeing for all Americans, so please consider making a small donation to IWF by visiting iwf.org/donate. That is iwf.org/donate.
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