eBay, PayPal, Venmo, and Etsy transactions over $600 should not be reported this year, IRS pauses rule
The IRS is delaying a rule that would have required e-commerce websites and payment platforms like eBay, Etsy, Venmo and PayPal to send out tax paperwork to a much wider swath of people in 2023 in order to avoid taxpayer confusion during the upcoming tax season.
Payment platforms were required to send Form 1099-K tax forms to individuals who received at least $600 from these kinds of websites and payment platforms starting the following year. When a recipient receives at least $20,000 and has at least 200 transactions, the forms are typically activated.
E-commerce companies, accountants, and other stakeholders pushed for a higher threshold, arguing that the additional paperwork would cause administrative difficulties for businesses and the IRS, which is already overburdened, as well as confusion among taxpayers. These organizations praised the Friday-announced pause.
The American Rescue Plan of March 2021 lowered the bar. Recent lobbying attempts to increase the threshold as a component of the year-end spending agreement failed. The $1.7 trillion spending bill was approved by the House on Friday and is now awaiting President Joe Biden’s signature.
The platforms that were supposed to adopt the now-suspended reporting requirements, such as Venmo, PayPal, and CashApp, will experience a “transition period” in the upcoming tax year, according to the IRS.
Acting IRS Commissioner Doug O’Donnell stated that Treasury and IRS officials were made aware of the worries regarding the implementation of the new, less stringent reporting requirements.
‘The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.’ — Acting IRS Commissioner Doug O’Donnell
“To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements,” O’Donnell said.
One organization pushing for higher reporting thresholds, which included companies like Airbnb ABNB, +0.45%, eBay, Etsy and PayPal, called the delay “great news for millions of Americans.”
“We appreciate the IRS providing this critical relief so that millions of people aren’t unnecessarily burdened with tax forms in 2023 for splitting meals, selling used goods, paying back a friend, or other instances where no taxable income was generated,” said a spokesperson for the Coalition for 1099-K Fairness. The delay creates a chance for lawmakers “to find a common-sense and permanent solution.”
The 1099-K is geared to report business income from goods and services, and the required tax obligations. But many people use payment platforms to pay back friends and family.
The IRS said the lower $600 threshold “is not intended to track personal transactions such as sharing the cost of a car ride or meal, birthday or holiday gifts, or paying a family member, or another for a household bill.”
And that, critics said, was part of the problem: How do payment platforms distinguish between payments for personal expenses versus payment for goods and services?
Another source of confusion: The rules surrounding tax obligations when personal property is sold at a loss.
Personal property sold at a profit can face a capital gains tax. But when personal property is sold at a loss — like secondhand items sold at a garage sale or online — capital-loss tax rules do not apply. Critics said the paperwork might confuse many casual sellers into thinking they faced a capital-gains tax when they did not.
“We appreciate the IRS stepping in and providing a one-year delay, and are encouraged that they recognized the threshold decrease would have caused confusion and uncertainty for Americans this tax season,” said an eBay spokesperson.
The American Institute of CPAs cheered the delay, calling it “the right move for taxpayers, tax practitioners and for the IRS” and urged a higher reporting threshold.
texasstandard.news contributed to this report.
