The IRS has again held back on implementing the 1099-K $600 tax reporting rule for the second consecutive year.
For those unfamiliar, this new regulation requires online marketplace and payment apps — including PayPal, Venmo, Etsy, eBay, StubHub, and the like — to forward any platform user “1099-K forms” if they received over $600 in payments for goods or services. And the rule applies to cumulative or single transactions between the same parties.
While the figures aren’t yet certain, this new reporting rule would likely apply to over 40 million taxpayers. Many of whom don’t realize they’re on the hook for another tax bill.
But once again, the prior rule remains, setting the threshold at $20,000 or more than 200 transactions.
Why The Delay?
A group of online marketplaces organized as the Coalition for 1099-K Fairness has been lobbying Congress to draft bipartisan legislation that raises the 1099-K threshold. The intent being to avoid penalizing millions of “casual sellers” who use third-party online sales platforms as a means to recycle old belongs.
There are also concerns that repayments for covered expenses (you pick up a tab, and your friend’s repayment triggers a 1099-K form), which are rising amid soaring inflation, could be unfairly tagged under the regulations as proposed.
What Should You Expect for the 2023 Tax Year?
Basically, nothing changes from 2022.
If you didn’t receive a 1099-K tax form in 2022 and didn’t accept over $20,000 in payments or complete more than 200 transactions using a payment portal or online marketplace in 2023, you won’t receive a 1099-K this year either.
What’s Next With 1099-K Reporting?
According to the IRS, 2023 is a “transition year” with regard to 1099-K reporting.
Moving forward, the plan is to establish a $5,000 threshold 1099-K reporting. But the $5,000 figure is considered a “phase-in” measure on the path toward applying the $600 reporting threshold.
The American Rescue Plan Act, legislation passed in 2021, is the source of the $600 reporting requirement. And eliminating or permanently raising this threshold would require new legislation amending the current regulations.
The IRS has also indicated they will revise the 1040 Form to make the 1099-K reporting process more straightforward and manageable for taxpayers.
In a recent press release, IRS Commissioner Danny Werfel said: “The IRS will use this additional time to continue carefully crafting a way forward to minimize burden,” with the intention being to “Make this as easy as possible for taxpayers.”
Ultimately, the push for 1099-K reporting is to collect more tax revenue from established online sellers, freelancers, and small businesses who use marketplace platforms and digital payment portals. The belief, addressed in the America Rescue Plan Act, is that these platforms allow many taxable transactions to go unreported.
Wondering Whether the 1099-K Reporting Requirement Applies to You?
As noted above, if you didn’t receive a form last year and nothing changed in your transition behavior this year, the requirements don’t apply.
But if you have questions or concerns, you can visit the IRS website for more details on the current regulations or — Get in touch for a FREE tax consultation!