Seeking to make the complex tax code clearer for freelance-type workers, U.S. Rep. Tom Rice (R-SC) introduced a bill on Friday that would help distinguish between independent contractors and employees for tax purposes.
Rice’s New Economy Works to Guarantee Independence and Growth (NEW GIG) Act aims to provide clearer rules on when a worker would be treated as an independent contractor rather than as an employee and also when a customer would not be treated as an employer under the tax code. In cases of when an internet app facilitates transactions or payments that third party also would not be treated as an employer.
“America is the land of opportunity and ‘gig-economy’ jobs are helping expand that opportunity for people in South Carolina and all across the country,” Rice said. “Now people can go on their phones and be hired for home maintenance repairs or ride-sharing services almost instantly. The NEW GIG Act serves to bolster this booming sector of our economy while reducing the complexity in worker classification that exists today.”
The legislation would create a safe harbor for workers to be classified as independent contractors for both income and employment taxes if they meet certain objective tests. Those tests include considering whether business relationships are job-by-job arrangements, if service providers incur business expenses and whether service providers are tied to a single recipient of services. Additional factors like whether a service provider has his or her own place of business and terms of a written contract would also be considered.
In the Senate, U.S. Sen. John Thune (R-SD) introduced the NEW GIG Act of 2017 in July.
“Today’s fast-growing ‘gig economy’ has made it easier for people to offer unique services, like home repair and cleaning, child care, food delivery, or ride-sharing, through easy-to-use mobile applications that can be opened with a simple swipe of a finger,” Thune said. “While these gig economy companies have created thousands of new jobs, they’ve also faced new challenges when it comes to how the service providers are classified by the IRS.”
The NEW GIG Act would also revise reporting rules for three-party transactions. Service recipients would be required to report independent contractor earnings totaling $1,000 or more a year on IRS Form 1099-K, up from the current $600 reporting threshold. And, in order to qualify for safe harbor, service recipients would be required to withhold a portion of payments for estimated tax payments to the IRS.
In cases where a service provider or service recipient feels safe harbor was incorrectly denied, the IRS would have authority to grant retroactive reclassification if a good faith effort was made to meet safe harbor criteria under the bill.
The bill would also allow both service recipients and service providers to petition the tax court regarding the misclassification of workers. Under current law, only service recipients are allowed to petition the court.