A new tax law is being proposed that would increase taxes for millions of middle-class Americans.
The “Protecting Rights to Organize” (PRO) Act has been one of the president’s top priorities. It would increase taxes on many independent contractors by forcing them to become W-2 employees.
A recent study has shown that the PRO Act violates Biden’s campaign tax pledge by raising taxes on 7.7 million Americans. It’s estimated 96 percent of the people affected make $400,000 or less.
The study was done by Americans for Tax Reform, the Tholos Foundation, and Beacon Hill Institute. The study uses IRS data from the Treasury to calculate the tax impact on independent contractors.
Independent contractors can deduct their business expenses on their income tax returns. However, due to the 2018 tax changes, W-2 employee can no longer deduct their business expenses.
Consequently, if independent contractors are reclassified as W-2 employees, they would not be able to deduct any of their expenses from their income.
The PRO Act contains a three-part test that determines whether a worker is an independent contractor. The PRO Act would require a business to prove a three-part ABC test to be taxed as an independent contractor. Part A requires that it is free from control of direction. Part B requires that its duties are outside the usual course of work of the hiring entity.
Part C of the PRO Act requires that an individual is customarily engaged in an independently established trade, business, occupation, or profession of the same nature as that involved in the service provided and must be providing service to more than one client to qualify as an independent contractor.
Part C would require that an individual provide services to more than one client in order to be considered an independent contractor. Part C would reclassify millions of independent contractors into W-2 employees.
Unfortunately, Part C would increase taxes for millions of people.
The PRO Act would not only impact independent contractors, but it would also impact the businesses that contract their services.
The PRO Act also nullifies right-to-work laws in 27 states.
The PRO Act would allow unions to strike and picket businesses that aren’t involved in a labor dispute. For example, if a union dispute involves an equipment manufacturer, it could also strike in front of a parts supplier who is not involved with the strike and has no way to solve the dispute.
The PRO Act would impact workers’ privacy by giving unions access to their personal information in an electronic, searchable impact. Employees would not be able to stop the company from distributing their information.
David Zubler is a tax accountant and Enrolled Agent in East Tennessee, providing tax strategies and representing clients before the IRS and has over 25 years of tax experience. David can be reached at (865) 363-3019 or contacted by email at [email protected]