The IRS announced Tuesday it will delay implementing the $600 threshold for reporting third party payments such as PayPal and Venmo.
“Following feedback from taxpayers, tax professionals, and payment processors and to reduce taxpayer confusion, the Internal Revenue Service delayed the new $600 Form 1099-K reporting threshold requirement for third party payment organizations for tax year 2023 and is planning a threshold of $5,000 for 2024 to phase in the new law,” the agency stated.
“Third party payment organizations include many popular payment apps and online marketplaces,” the agency continued.
The rule change, originally supposed to take effect in 2022, would impact platforms like Airbnb, Uber, and eBay.
“The agency is making 2023 another transition year to implement the new requirements under the American Rescue Plan that changed the Form 1099-K reporting threshold for payments taxpayers get selling goods or providing a service over $600. The previous reporting thresholds will remain in place for 2023,” the agency added.
— New York Post (@nypost) November 22, 2023
“The controversial tax-reporting rule, which received no Republican votes when it was approved by Democrats in Congress in 2021 as part of the American Rescue Plan, would have resulted in some 44 million additional 1099-K forms being sent out in January by the IRS,” the New York Post reports.
“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,” said IRS Commissioner Danny Werfel.
“Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion as we continue to look at changes to the Form 1040. It’s clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area,” he added.
The New York Post reports:
With the delay in place, users of third-party payment apps will not be required to fill out 1099-K’s in 2023 unless they received over $20,000 in income and engaged in more than 200 transactions.
The IRS is planning for a threshold of $5,000 for tax year 2024 as part of a phase-in, and will presumably implement the $600 reporting threshold in tax year 2025.
The new rule only applies to payments received for goods and services transactions.
Reporting requirements do not apply to personal transactions such as birthday or holiday gifts or splitting the cost of a meal or household bills, according to the agency.
Critics of the rule change, such as the Coalition for 10-99-K Fairness, argue that there are privacy concerns that come with forcing third-party payment app to reveal details of user transactions with the government, as well as an unfair tax burden that falls on “casual online sellers and microbusinesses.”
The Biden administration hopes to crack down on tax evasion by reducing the reporting threshold.
The IRS announced on Tuesday that it is delaying Biden's controversial tax reporting requirement targeting Americans who made more than $600 online through third-party payment apps like Venmo or PayPal.
Even government bureaucracy sees the idiocy in this.
— Mark Nantz (@BullseyeBanjo) November 21, 2023
From the IRS:
As the IRS continues to work to implement the new law, the agency will treat 2023 as an additional transition year. This will reduce the potential confusion caused by the distribution of an estimated 44 million Forms 1099-K sent to many taxpayers who wouldn’t expect one and may not have a tax obligation. As a result, reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023.
Given the complexity of the new provision, the large number of individual taxpayers affected and the need for stakeholders to have certainty with enough lead time, the IRS is planning for a threshold of $5,000 for tax year 2024 as part of a phase-in to implement the $600 reporting threshold enacted under the American Rescue Plan (ARP).
Following feedback from the tax community, the IRS is also looking to make updates to the Form 1040 and related schedules for 2024 that would make the reporting process easier for taxpayers. Changes to the Form 1040 series – the core tax form for more than 150 million taxpayers – are complex and take time; delaying changes to tax year 2024 allows for additional feedback.