When Dan Marx helped launch a new startup this summer, he pictured himself having to learn more about bicycles and their parts than anything related to U.S. tax policy. But in the first few months of BikeList, a peer-to-peer marketplace for bike sellers and buyers, the tech veteran is getting a crash course in taxes, politics and more.
BikeList is among a group of marketplace companies and payment platforms pushing back against a revision to the tax code that was included in President Biden’s American Rescue Plan Act of 2021. Previously, users of such sites as eBay, Etsy, PayPal, Venmo and others received a 1099-K tax reporting form for goods and services sold only after they made $20,000 in a year or had more than 200 transactions. The policy revision lowered the threshold to $600 in earnings.
This effort to close the tax gap is reportedly aimed at capturing an estimated $8.4 billion more in tax revenue over a decade from gig workers who earn income from apps such as Uber and DoorDash. But BikeList and others fear casual online sellers are going to be caught up in the filing mess.
“There’s going to be confusion,” Marx said. “I think a big concern is that a lot of folks are going to assume that they have to pay tax when they don’t necessarily have to. It all depends how much profit you made off what you sold.”
Marx, who serves as chief technology officer for his three-person startup, is getting a quick lesson in lobbying as he’s been called on by the Coalition for 1099-K Fairness to share his company’s story in meetings with staffers from assorted U.S. representatives and senators. His goal is to articulate what impact the tax change will have on BikeList’s ability to function and attract new sellers.
The startup is already hearing from users who are confused or turned off by the need to supply their social security number when signing up. Marx called it a “customer service nightmare,” but BikeList was intent on having a proper response and educating users. New language on the company’s website (below) now details why they’re collecting that information.
Bellevue, Wash.-based OfferUp competes against Craigslist, eBay, Facebook and other marketplaces where users buy and sell goods. Founded in 2011, the company has 56 million buyers and sellers on its platform and is also supporting the Coalition for 1099-K Fairness to protect the interests of its sellers.
“The change to the 1099-K reporting threshold, while well-intentioned, will result in confusion for individuals selling used household items on re-commerce platforms,” Nathan Garnett, general counsel for OfferUp, said in an emailed statement to GeekWire. “These sales are usually made below the original purchase price and do not generate income for federal tax purposes.”
While calling the requirement for 1099-Ks for small transactions “unnecessary and confusing,” OfferUp also believes there are potential privacy and security risks associated with gathering personal tax reporting information on these sites.
“We support a revised reporting threshold that distinguishes between individual small sellers and actual businesses that have the income, resources, and sophistication to manage the 1099-K process,” Garnett said.
The Coalition for 1099-K Fairness is calling on Congress to raise the threshold back to a level which would not impact so many casual online sellers. The organization conducted a survey in February targeting U.S. adults who sold less than $20,000 in goods online in 2021.
While 83% of survey respondents say they sell used or pre-owned goods online, only 47% were aware of the new IRS reporting requirements and 69% said they are likely to stop selling because of those requirements.
Ed Cafiero, a public affairs specialist with D.C.-based Marathon Strategies, is handling communications efforts for the Coalition for 1099-K Fairness. He told GeekWire that there are concerns about how aware people are of the change.
“I think there’s a high probability that people are just going to over report their income because they just don’t want to run afoul of the IRS,” Cafiero said. “It’s setting up to be quite confusing and potentially expensive tax season if this isn’t fixed before the end of the year.”
The fix could come in the form of legislation being sponsored by Democrats and Republicans in both houses of Congress. New Hampshire Rep. Chris Pappas is among those who want to raise the sale reporting threshold to $5,000. Tennessee Sen. Bill Hagerty is among those pushing a return to $20,000, introducing a bill called “Stop the Nosy Obsession with Online Payments,” or SNOOP Act, to strike the tax code provision.
The goal for any legislation is to get it attached to a year-end tax package taken up in the coming weeks as part of the lame-duck session between the recent midterm elections and the end of the calendar year.
Marx, the BikeList co-founder, called it a critical point in time where lawmakers in D.C. can prevent an avalanche of paperwork that’s going to have to be mailed out come January. He said he’d be happy with either attempt to fix the situation, but he’s leaning toward the $5,000 threshold.
“I’m more of a technologist and we tend to like to do things in small steps instead of arguing for the big thing,” he said. “Get some traction, get that [minimum viable product] out, and then later we can see if there’s appetite to raise the bar.”