Gig workers and third-party sellers on e-commerce platforms such as Etsy, Inc. (NASDAQ: ETSY), Walmart Marketplace (NYSE: WMT) and even Amazon (NASDAQ: AMZN) could find themselves with tax issues in 2022 thanks to a change in Internal Revenue Service tax codes contained within the American Rescue Plan Act of 2021.

The $1.9 trillion COVID relief bill that just passed the U.S. House and Senate and is expected to be signed into law by President Joe Biden by this weekend amends Section 6050W of the IRS code to require reporting for any transactions that exceed $600 in gross sales through a 1099-K form.

This change means not only are workers required to claim this income on their taxes (as currently required), but any business that pays them, such as Uber (NYSE: UBER), Lyft (NASDAQ: LYFT), DoorDash (NYSE: DASH) and even marketplaces like Etsy (NASDAQ: ETSY), will be required to submit a 1099-K to the IRS on the individual’s behalf. Under current law, payment organizations must only file a 1099-K form on behalf of a seller when total sales exceed $20,000 and/or total transactions exceed 200 in a tax year.

“Payments made in settlement of third-party network transactions, however, are required to be reported only if the amount to be reported exceeds $20,000 and the aggregate number of transactions exceeds 200 with respect to any payee within a calendar year,” Internal Revenue Bulletin: 2011-23, issued in 2011, says.

“There is a segment of the population that is probably making ends meet and of course they should be aware of their tax obligations, but as they try to cobble together an income, should we be going after these people?” asked Katie Vlietstra, vice president of government relations and public affairs for the National Association for the Self-Employed (NASE).

Vlietstra told Modern Shipper NASE believes all sellers and gig economy workers should be meeting their tax obligations, but the new requirement, which goes into effect on Jan. 1, 2022, could have unintended consequences.

“Every individual should be meeting their tax obligation. They should understand their tax liabilities,” she said. “Our concern is … when you are making big fundamental changes, there isn’t a lot of emphasis placed on the technical changes.”

Vlietstra noted the DoorDash driver who makes money on the weekend to supplement a full-time job.

“Is that their true income [on the 1099-K]? Is that expenses? Do they understand what that means?” she said. “My position on this is maybe $600 is the right amount – we have seen some states that have moved to that reporting level – but there hasn’t been a [conversation with] people who are working in the diversified economy.”

Read: Getting gig workers the unemployment they deserve

NASE will be focusing on education this year to ensure everyone complies with the new regulation, and Vlietstra said it will continue to “voice to Congress that we need to circle back on this.”

“I think there are some unintended grabs that could happen,” she added. “Everyone should be meeting their tax obligations, but if I’m selling my table for $800 more than I paid for it, [do I need to claim that]? Overall, the bill was good. We need to get back to work. We need small businesses to get back to work … but in a massive $2 trillion bill, things get thrown in.”

For businesses, the change is straightforward – they need to monitor and report any income they pay out exceeding $600. That includes online marketplaces that are facilitating these transactions. But for third-party sellers on platforms like Etsy, it gets more complicated, requiring more tracking of expenses as income that may have slipped under the IRS’ radar before may no longer.

“You need to be tracking your expenses and what is a qualified business expense,” Vlietstra said. “Make sure you understand what this really means for your tax exposure. Make sure you are tracking gas and meals and other things. As taxes get more complicated, they may need help doing their taxes.”

There are several open questions, though, Vlietstra said. An example would be an individual who sells tickets on a platform such as StubHub. Is that a business? Does that single transaction, if it exceeds the $600 limit, trigger a 1099-K? What about roommates who may pay each via Venmo for utilities? At the end of the year, those transactions could exceed $600, but should that money be claimed as income? How would the roommates record that on a tax return if Venmo issued a 1099-K? And how does a platform such as Venmo know what should be considered income? The answers to these questions, Vlietstra said, are to be determined, but she is concerned that situations such as this could trigger unnecessary IRS audits.

“I feel like we put our finger in a hole and there are still 500 holes spitting water at us,” she said.

Click for more Modern Shipper articles by Brian Straight.

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A recent decision from the 1st U.S. Circuit Court of Appeals found that a housecleaner who claimed her employer had misclassified her as an independent contractor couldn’t sue because she was bound by a “clickwrap” mandatory arbitration agreement.

The plaintiff in Emmanuel v. Handy Technologies, Inc. had submitted an application through the website of a company that assigns housecleaning jobs to workers and clicked a checkbox agreeing to its terms of use.

She subsequently used the company’s mobile app to accept an independent contractor agreement, which was required for her to be connected with customers.

The 15-section agreement included a mandatory arbitration clause in section 12. That portion was not visible unless the user scrolled down through the entire agreement.

The plaintiff performed between 10 to 20 cleaning jobs for the defendant but stopped working because of payment issues. She then brought a putative class action alleging that she and others had been misclassified as independent contractors in violation of the state Wage Act and the federal Fair Labor Standards Act.

When the defendant moved to compel arbitration, the plaintiff argued that she did not have sufficient notice of the arbitration clause to be bound by it.

But the 1st Circuit disagreed. Applying the standard set forth earlier this year by the Supreme Judicial Court in Kauders v. Uber Technologies, Inc., it concluded that an online contract had been formed because the plaintiff had “reasonable notice” of the terms and made a “reasonable manifestation of assent” to those terms.

The court acknowledged that only a portion of the agreement was immediately visible on the plaintiff’s phone screen, and that portion did not include the arbitration provision. But it took the position that it was sufficiently clear that “additional text further specifying the terms of the Agreement could be viewed by scrolling.”

In doing so, it specifically declined to read Kauders as holding that for a user to be bound by terms visible only through scrolling, he or she must be required to scroll through the full text of the agreement.

The problem with that reading is that it fails to take into account that workers like the plaintiff are largely unsophisticated, low-wage gig workers. They are encountering long, dense agreements like the one in Emmanuel on their phones, which makes thorough review next to impossible. Moreover, they are not in a position to negotiate over the terms of such an agreement.

In fact, in some ways, these workers are more similar to consumers facing “take it or leave it” arbitration provisions than traditional employees.

It’s unfortunate that decisions like this one gloss over that reality.

Massachusetts Lawyers Weekly’s Editorial Advisory Board provides knowledge and guidance for the editorials that appear on this page. The board is an advisory panel only, with no official voting or participation record. The input from the board is a tremendous resource to Lawyers Weekly; however, the editorials represent the position of the newspaper and its editorial staff, not the members, nor any given member, of the board. 

BOARD OF EDITORS: Robert J. Cordy, Boston; Sophia L. Hall, Boston; Martin W. Healy, Boston; Hon. Margaret R. Hinkle, Boston; Thomas M. Hoopes, Boston; Regina M. Hurley, Boston; Shiva Karimi, Boston; Hon. Rudolph Kass, Boston; Marsha V. Kazarosian, Haverhill; Andrea C. Kramer, Boston; Renee M. Landers, Boston; Richard L. Levine, Boston; Elizabeth N. Mulvey, Boston; Eric J. Parker, Boston; C. Max Perlman, Boston; Patricia M. Rapinchuk, Springfield; Martin R. Rosenthal, Boston; Jeffrey Sacks, Boston; Carol A. Starkey, Boston

6. Taxable Brokerage Account