Side Hustlers Rejoice: IRS Again Delays $600 Reporting Rule for App Payments After Rollout Fumble
Workers in America’s sprawling gig economy and millions of others who buy and sell through the internet have received a reprieve from a tax law change Democrats rammed through in 2021.
Before 2022, the rule was that a worker had to receive more than 200 payments and receive more than $20,000 from those payments to trigger a Form 1099-K. The form is sent by a third-party processor such as PayPal or Venmo to the individual who was paid. The form also goes to the IRS.
According to the New York Post, not a single Republican voted for the tax law change that cut the $20,000 limit to $600 and removed the 200-payment requirement when the move was lumped into the American Rescue Plan, which passed when Democrats controlled both houses of Congress in 2021.
The change was separate from the 2022 Inflation Reduction Act funding that gave the IRS about $80 billion to hire new staff, according to Reuters.
The IRS initially delayed the tax law’s implementation by a year, which meant it would begin in 2023. Up until last week, the 1099-K change meant that about 44 million additional 1099-K forms would be sent out in January.
Then the IRS announced in a Nov. 21 news release that it would delay implementation for another year.
“We spent many months gathering feedback from third party groups and others, and it became increasingly clear we need additional time to effectively implement the new reporting requirements,” IRS Commissioner Danny Werfel said.
“Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion. … It’s clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area.”
For 2024, the limit to trigger a 1099-K, which would indicate a tax liability for the income, will be $5,000.
The IRS said that the problem it ran into was that personal transactions such as “birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill” should not be reported by third-party processors to trigger a 1099-K.
Further complicating matters, the IRS said that “the casual sale of goods and services, including selling used personal items like clothing, furniture and other household items for a loss, could generate a Form 1099-K for many people, even if the seller has no tax liability from those sales.”
“This complexity in distinguishing between these types of transactions factored into the IRS decision to delay the reporting requirements an additional year and to plan for a threshold of $5,000 for 2024 in order to phase in implementation,” the IRS said, noting that its plan remains to get to the $600 limit Democrats approved in 2021.
The Coalition for 1099-K Fairness supported the delay.
“The IRS decision to delay 1099-K implementation spares millions of Americans from widespread confusion and represents a critical step in allowing Congress more time to craft a legislative solution,” Arshi Siddiqui, a partner at Akin Gump, said in a statement.
“The Biden Administration’s decision represents a victory for common-sense tax policy by ensuring that consumers are not facing a tsunami of 1099-Ks in January.”
The coalition is made up of online marketplaces and payment processors, including Airbnb, eBay, the Electronic Transactions Association, Etsy, OfferUp, PayPal and StubHub.
Members of Congress have been calling for changes to the law.
In May, Democratic Sen. Sherrod Brown of Ohio and Republican Sen. Bill Cassidy of Louisiana introduced the Red Tape Reduction Act, which would increase the threshold that triggers a 1099-K to $10,000, according to Reuters.
The House Ways and Means Committee has proposed scrapping the American Rescue Plan revision altogether as part of its “Small Business Jobs Act.”
“The last thing Americans want is a government crackdown on selling a used couch, concert tickets, or paying your neighbor’s kid to mow the lawn. And yet Democrats reduced the 1099-K reporting threshold for third-party payment platforms — like Venmo and PayPal — from $20,000 to just $600,” Chairman Jason Smith of Missouri said in June remarks.
“Even the Biden Administration realized that this provision was problematic and delayed implementation by a year. A year? We say get rid of this rule entirely.”
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