IRS Delays 1099-K Reporting Rule Again: What Creators Need to Know

Photo by Ron Lach

Payment platforms, like Venmo and CashApp, and online marketplaces, like Esty and Fiverr, were supposed start reporting payments to the IRS for users who sold over $600 in goods and services during 2023.

That income was to be reported on a Form 1099-K. And, it would have meant many creators would several additional tax forms for transactions made through apps and platforms they used throughout the year.

But this week, the IRS announced that reporting requirement has been delayed—again.

“The agency will treat 2023 as an additional transition year,” the IRS said.

If the requirement proceeded as planned, about 44 million 1099-K forms would have been sent out for this year, according to IRS, which admits “the risk of massive confusion.”

Many of the forms would have went to “taxpayers who wouldn’t expect one and may not have a tax obligation.”

This requirement, which came to be as part of the American Rescue Plan, was supposed to go into effect last year. But it was delayed then because, like now, the government wasn’t ready.

Problems with the rule

This incompetent rule came from legislators who were so focused on a new way for the government to cash in on taxpayers that they forgot to think though how it would actually work.

One major problem is that that many of the transactions the government was lusting after are personal use—Parents sending money to kids in college. Roommates splitting the rent.

That’s part of what the IRS was referring in saying 44 million forms would have went out but some people wouldn’t actually owe tax. The IRS doesn’t want these types of transactions reported on a 1099-K.

The question is: how does an app or the IRS distinguish? And if it’s left to an honor system, how’s that likely to work out?

Another issue is the rule would affect a lot of people the IRS refers to as casual sellers. If people move and sell the furniture in their apartment, if they don’t get as much as they paid, meaning they sell at a loss, there’s no tax due.

Likewise, with people who re-sell their clothes, books, or any other personal items.

But the government still wants to know about these payments. Because if you sell your furniture for more than you paid, that’s income and Uncle Sam wants that tax money.

“This complexity contributed to the IRS decision to delay the additional year to provide the agency time to update its operations to make it easier for taxpayers to report the amounts on their forms.”

The IRS said it’s looking to make changes to Form and related schedules for 2024 that would make the reporting process easier for taxpayers.

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.”

This rule has drawn criticism from taxpayers, tax professionals, businesses, and even some legislators.

Senator Jon Tester from Montana wrote a letter to IRS commissioner Werfel. He said a Government Accountability Office report deemed this rule a burden on taxpayers and a challenge for the IRS.

“If these burdensome requirements are allowed to take effect during the upcoming tax season, it will hurt folks of Montana and across the county,” he wrote.

So who’s getting a form for 2023?

For the 2023 tax year, platforms are not required to report the income on a 1099-K unless the taxpayer receives over $20,000 and has more than 200 transactions this year.

However, the IRS warns that companies could still issue the form for people who didn’t meet the threshold if they choose to. So, remember, if you get a form, the IRS got a copy.

Tax still due

The IRS also reminded folks that although the platform payment rule is delayed, the longstanding tax law hasn’t changed.

“All income, no matter the amount, is taxable unless it’s excluded by law whether a Form 1099-K is sent or not.”

Did You See: 15 Tax Deductions for Freelancers?

What’s the plan for 2024?

Currently, the plan is for the rule to go into effect for transactions next year. But instead of the threshold for a 1099 being $600, it’ll be $5,000.

The IRS said its inviting feedback on that $5,000 threshold and other elements of the reporting requirement, including how best to focus reporting on taxable transactions.

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