New $600 reporting threshold for 1099-K tax forms delayed
Posted on January 12, 2023
If you were becoming concerned about an updated part of the American Rescue Plan requiring third-party transaction networks (Venmo, Paypal, eBay, and Etsy) to issue a 1099-K for those who exceeded $600 in payment transactions during the year, you can relax.
That change was set aside by the IRS – just before the Christmas holiday — for now.
Here’s why the new rule was put on hold:
- Many professional groups called for more time before implementation, citing that those who use these types of payment services do so for many nontaxable events (i.e., splitting meals, selling used items, paying back a friend, and many other instances where no taxable income was generated).
- Tax and accounting professionals also noted that the previous 1099-K threshold was $20,000, or more than 200 transactions.
- The 1099-K forms were scheduled to get sent to taxpayers in January, creating mass confusion for many Americans.
What was the original purpose of the new law?
The lower reporting threshold was intended to capture electronic cash incomes from side gigs, part-time work, or small businesses.
However, experts voiced their opinions that many taxpayers would potentially receive a 1099-K government form for personal transactions that are not taxable.
What should you do, moving forward?
Experts hope the postponement will give the IRS more time to provide a smooth transition for when the reporting threshold is actually enacted.
More time would also offer the IRS more time to issue detailed guidance to third-party platforms (Venmo, Paypal, Zelle, Payment Cloud, Square, eBay, Etsy, and others), which can then better separate out taxable and non-taxable transactions.
The bottom line? The IRS announcement is welcome news to both tax professionals and the public to provide the time needed to become educated regarding compliance for third-party settlement companies. Stay tuned for more details.