VIEWpoint Issue 1 | 2020
VIEWpoint Issue 3 | 2019
Contractor’s Revenue Recognition Reminder Checklist
While the American Rescue Plan Act brought additional financial relief for businesses and individuals still being impacted by coronavirus, it also included a tax provision targeted toward platform businesses, such as Uber, Lyft, etc., and its contract workers. This new tax reporting measure is in an attempt for the Internal Revenue Service (IRS) to begin collecting taxes on related annual revenues and incomes. The amended tax code will now require platform businesses to tell more contract workers how much money they have made on its respective platform, starting with the 2022 tax year. Historically, platform businesses only had report incomes from contract workers with very high earnings and transactions.
Managing taxes has been a challenge for contract workers using platform businesses, as the U.S. tax code was not designed with these types of workers in mind. Consequently, as these contract workers begin earning more income from platform businesses, the chances of being audited or owing in back taxes increases as well.
Beginning with the 2022 tax year and going forward on an annual basis, contract workers who earn more than $600 will receive a Form 1099-K, regardless of the number of transactions. This form will also be sent to the IRS by the company, which details the contract worker’s gross income from the platform business. Previously, the law only required companies to send these forms to contract workers who earned more than $20,000 in income over more than 200 transactions.
For platform businesses, this new reporting measure will bring them an additional business expense due to the need to produce more forms for its users and distribute to the IRS. Some companies leverage online tools to help contract workers track their income and expenses, however, with the previous $20,000 threshold, many of these workers were not receiving 1099-K forms.
Moving forward, it will be critical for both the business and worker to ensure this is being appropriately tracked to minimize any potential tax scrutiny down the road. This new bill also brings concerns as to whether contract workers will be discouraged from using platform businesses as a side gig, which could also negatively impact the business.
This latest tax provision has drawn some criticism from platform businesses and groups who oppose this amendment or would like to see the threshold increased. Doeren Mayhew’s dedicated tax advisors continue to monitor the latest tax news and information and its impact on businesses and individuals. To obtain assistance with your tax planning or compliance needs, contact us today.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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