Congress re-introduces bill to simplify small business taxes

By Michael Cohn

The Democratic and Republican leaders of the House Small Business Committee have re-introduced a 2017 bill to help small business owners simplify their taxes.

Despite the passage of the Tax Cuts and Jobs Act at the end of 2017, the bill includes a number of provisions that were left out of the far-reaching tax code overhaul. Rep. Steve Chabot, R-Ohio, the ranking Republican on the committee, partnered with Rep. Nydia Velázquez, D-N.Y., who now chairs the committee. Chabot originally introduced the bill in 2017 when he chaired the committee, before control of the House switched to Democrats.

The bill aims to reflect technological advances and modern business models by allowing electronic signatures, strengthening anti-fraud measures, and clarifying cafeteria plan participation for small businesses.

“The Small Business Owners’ Tax Simplification Act of 2019 seeks to further modernize the tax code in a way that offers our nation’s entrepreneurs both clarity and consistency, so they are able to more effectively start and grow their businesses,” Chabot said in a statement last week.

Like the 2017 legislation, the 2019 bill would amend the tax code to align the deadlines for quarterly estimated tax payments with the calendar year quarters for small businesses and self-employed individuals. The bill would also modify the dollar thresholds for various information reporting requirements.

In addition, the bill would allow certain self-employed individuals to participate in cafeteria benefit plans. It would exclude from self-employment income net earnings that are less than the amount required under the Social Security Act for a quarter of coverage for the calendar year in which the tax year began. The legislation would also allow certain health insurance costs of self-employed individuals to be deducted for self-employment tax purposes. The bill would also specify that voluntary tax withholding agreements, training or group discount programs have no effect on whether an individual is classified as an employee or an employer.

Under the bill, the Treasury Department would be mandated to establish uniform standards and procedures for the acceptance of digital or electronic signatures, and use pre-notification testing to verify recipient information before transferring a tax refund or credit through an electronic funds transfer.

The legislation is also aimed at businesses involved in the so-called “sharing economy.” “I am pleased to work across the aisle by joining Ranking Member Chabot in re-introducing this tax bill that takes common-sense steps to benefit the backbone of the American economy—small businesses,” stated Velázquez. “By allowing companies the flexibility to assist independent contractors, this bill provides more tax compliance assistance for micro-entrepreneurs as the sharing economy continues to expand. When it comes to taxes, we simply cannot afford to leave our small businesses and entrepreneurs behind.”

A trade group representing entrepreneurs, the National Association for the Self-Employed, welcomed the legislation.

“We applaud both U.S. Reps. Velázquez and Chabot for their bipartisan commitment and support for America’s small business community,” said NASE president and CEO Keith Hall in a statement. “Millions of small businesses, including the self-employed and micro-business community, lose valuable time and money by trying to navigate the maze of burdensome business regulations each year. This is time and money that could be directly invested back into their business operations, allowing them to grow and expand their businesses.

He sees the need for the legislation even after passage of the Tax Cuts and Jobs Act. “Our elected officials in Washington took extraordinary steps in 2017 to simplify the tax code and make it easier for small businesses to complete their tax returns,” Hall stated. “These businesses will realize these fruits this year while filing their tax returns. The bottom line: our tax code is outdated and cumbersome. But this new small business legislation, combined with the new tax system, are critical steps to modernizing our tax code so it is beneficial for all businesses.”

Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.