Paul L. Caron

Saturday, February 21, 2015

Uber, Lyft, and the IRS

LogoSan Francisco Chronicle, Here’s Why Uber and Lyft Send Drivers Such Confusing Tax Forms:

Uber and Lyft say their drivers are independent contractors, not employees. But when it comes to income-tax reporting, they are treated as neither.

Traditional employers send employees, and the Internal Revenue Service, Form W-2, which shows their wages, deductions and other information.

Freelancers and independent contractors typically get Form 1099-MISC (for miscellaneous income) from any person or company that paid them more than $600 the past year.

But people who earn money through Uber, Lyft, Airbnb, Task Rabbit and a number of other companies in the sharing economy often get neither form. If they get anything, it’s usually Form 1099-K, a relatively new and confusing document used mainly to report credit and debit card payments and online transactions. ...

If Einstein couldn’t understand the tax system, it’s easy to see why entrepreneurs in the on-demand economy are befuddled. Many are self-employed for the first time and unaware of the need to keep careful records and make estimated tax payments four times a year. They’ve never filed a Schedule C, or paid self-employment taxes. Getting a 1099-K adds to the confusion.

The law that created Form 1099-K was passed in 2008, before most sharing-economy companies were started. Congress saw it as a way to unearth income that was not being reported to the IRS.

It requires banks and other entities that provide credit and debit card acceptance services to send this form to merchants with whom they do business. The form, which also goes to the IRS, shows the gross revenue a merchant received on payment cards the previous calendar year. There is no exception for small amounts; even $1 must be reported. ...

It’s also not clear why some companies (such as Uber and Airbnb) send them to all workers whereas others (such as Lyft, RelayRides and TaskRabbit) send them only to those who exceed exceed the $20,000 and 200 transactions threshholds. “Both positions are viable” until the IRS provides further guidance on this complicated matter, Langer said.

For more, see Jordan M. Barry (San Diego) & Paul L. Caron (Pepperdine), Tax Regulation, Transportation Innovation, and the Sharing Economy, 81 U. Chi. L. Rev. Dialogue ___ (2015).

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