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Form 1099-K and income reporting, part 2: the sharing economy

In the first part of this post, we explained how a new informational form, 1099-K, has caused considerable confusion. Since 2012, the form has been required for credit card companies and other "payment settlement entities" to report certain payments they have processed.

As we noted, a Treasury Department report recently found that many taxpayers fail to file tax returns, despite the fact that the IRS receives Form 1099-K reports about their income.

In this part of the post, let's take a brief look at how the reporting requirements for third-party payments affect the social-sharing economy. In particular, we will discuss how Form 1099-K affects the sharing economy, particularly drivers for ride-sharing companies such as Lyft and Uber.

Ride-sharing companies typically take the position that their drivers are not employees who receive a W-2 form documenting their wages and tax withholding deductions. Instead, the companies generally assert that the drivers are independent contractors.

But an independent contractor should normally receive a Form 1099-MISC for the miscellaneous income they have earned from a particular employer (either a person or a company), if the amount was greater than $600 for the year.

Drivers for ride-sharing services, however, do not necessarily receive Form 1099-MISC.

For example, one driver for Uber received Form 1099-K, showing nearly $69,000 in credit card payments received for the year. This was jarring not only because he wasn't familiar with Form 1099-K, but because the reported amount for payments he had received appeared to be excessively high.

This same driver also worked for Lyft in the Bay Area, generating several thousand dollars worth of payments. But he did not receive a 1099-K from Lyft for his earnings.

The reason for this appears to be that Lyft and Uber have different policies when it comes to sending Form 1099-K. Uber sends the form to all drivers, no matter how many trips they make. Lyft takes a different approach, sending them only to drivers who meet certain metrics: at least 200 trips in the year, producing at least $20,000 in fare revenue.

Clearly tax compliance strategies for work in the sharing economy are a work in progress.

 

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