Corrected, March 15 | A group of vulnerable Democrats is pressing for a higher earnings threshold to trigger tax reporting requirements for gig workers and online sellers, arguing that the lower limit that began this year could lead to people paying more tax than they owe.

Reps. Chris Pappas of New Hampshire and Cindy Axne of Iowa, along with New Sens. Maggie Hassan of New Hampshire and Kyrsten Sinema of Arizona, plan to introduce legislation Tuesday that would provide some relief from the policy change that Democrats enacted a year ago to help pay for their COVID-19 aid package.

That law slashed the threshold for receiving a tax form based on third-party network transactions, a category that includes people who sell on sites like eBay or Etsy, drive for Uber or Lyft, host through Airbnb or collect business payments through Venmo and PayPal. Many are part of the booming gig economy fueled by the growth of apps like Uber, Grubhub and TaskRabbit.

Previously, reporting was triggered when someone received payments at least 200 times per year totaling a minimum of $20,000. The March 2021 pandemic aid law cut the limit down to only $600 in payments starting this year, a move estimated to generate about $8.4 billion in tax revenue through 2031.

The measure from Pappas, Axne, Hassan and Sinema would lift the reporting threshold to $5,000 retroactive to the start of 2022 and require plain-language explanations to accompany the forms.

The lawmakers emphasized that as is, the rules could mean tax forms going out to people selling used clothes and other belongings online. Those sellers often don’t owe taxes on the transactions because they’re selling items for less than what they originally paid for them.

“A used good sold for less than the original purchase price will not create any taxable income, yet these transactions will now trigger IRS reporting requirements, yielding confusion and ultimately overreporting of income,” Pappas said in a statement. “Raising the reporting threshold will ensure sellers of used goods are not subject to burdensome or confusing reporting requirements, which could result in overpayment as well as ineligibility for certain tax benefits.”

Close races

If leadership takes up the effort, it could deliver a win for Democrats expected to be in close races in this November’s midterm elections. Pappas and Axne are both part of the Democratic Congressional Campaign Committee’s “Frontline” program, the party’s effort to aid members defending competitive seats.

Inside Elections with Nathan L. Gonzales rates Axne’s seat a “Toss-up.”

New Hampshire hasn’t finished redistricting, which will have a significant impact on Pappas’ race. House Republicans proposed a map that would slant his district toward the GOP, although Gov. Chris Sununu, a Republican, is urging more competitive districts, according to local reports.

Inside Elections rates Hassan’s race “Tilt Democratic.” A Finance Committee member, Hassan is leading the push for several tax provisions that would reverse controversial changes Congress enacted in recent years, including measures she has to restore full and immediate expensing of research and development costs and to revive a tax credit providing pandemic relief to small businesses and nonprofits for the end of 2021.

Sinema isn’t up for reelection until 2024, but the centrist senator has become a lightning rod on the left and could face a primary challenge in addition to tough GOP competition in a key swing state.

The latest proposal is likely to find support at least among some other House Democrats. Pappas led a letter with 15 colleagues in November calling on House leadership to raise the gig and freelance worker tax reporting threshold.

Signatories included Mike Levin of California, a member of the DCCC’s Frontline program, as well as former Frontliners Lucy McBath of Georgia and Haley Stevens of Michigan, who dropped off after redistricting results. Stevens is still on Republicans’ midterm target list.

Major business groups and payment providers have lobbied on the reporting issue, which would create additional work for companies under the current rules.

Groups that weighed in on issues related to the 1099-K reporting in 2021’s final quarter included PayPal, payment service Square and the U.S. Chamber of Commerce, according to a review of lobbying disclosures. The Electronic Transactions Association reported pressing for repeal of the $600 threshold change. Members of that group include PayPal, Visa, American Express and Mastercard.

Critics of the move have pointed to the impact on taxpayers. When Democrats slipped the pay-for into their package last year, some said it would hit gig workers and small-business owners hard as they struggled with the pandemic’s impact. 

The IRS estimated in 2019 that workers subject to reporting and withholding of their taxes by employers pay 99 percent of taxes they owe, while tax compliance is around 45 percent for those without the same reporting requirements. The revenue generated by the lower threshold for 1099-K reporting would come from uncollected taxes owed by gig workers or online sellers.

The Biden administration has made narrowing the “tax gap” — the difference between what’s owed and paid to the government each year — a top objective. Democrats included $80 billion in extra IRS funding in their stalled $2.2 trillion social safety net and climate package, which would largely fund enforcement efforts.

This report has been updated to reflect that Reps. Lucy McBath, D-Ga. and Haley Stevens, D-Mich., are no longer part of the DCCC’s Frontline program.