The IRS said on Tuesday it is again delaying the implementation of a 2021 law that requires payment platforms such as Venmo, Paypal or Cash App to send tax forms called 1099-Ks to anyone who received more than $600 in the current tax year.
It’s the second year in a row that the IRS has delayed implementation of the new rule, after the tax agency last year delayed the new law until 2023. On Tuesday, the IRS said it would delay the regulation for another year “to reduce taxpayer confusion” after hearing from taxpayers, tax professionals and payment processors.
Without the delay, an estimated 44 million 1099-K forms would have been sent to millions of taxpayers for the current tax year, even though they may not have owed taxes on the payments and wouldn’t have expected such a form, the IRS said.
Instead, the IRS will rely on a pre-existing threshold – more than 200 transactions that exceed $20,000 in income – to send 1099-Ks in early 2024 to complete the current tax year’s returns.
Reporting threshold raised to $5,000
In a major change to the law, the IRS said it will transition to the new rule starting in the 2024 tax year by raising the reporting threshold from $600 to $5,000. This means that people who receive more than $5,000 in payments through PayPal and other applications in 2024 would receive the 1099-K tax form in early 2025 to complete their 2024 tax returns.
For the 2025 tax year, the threshold would drop to $600 unless the IRS makes additional changes.
“The IRS’s decision to delay implementation of the new Form 1099-K reporting requirements is good news for taxpayers, tax professionals and payment processors,” said Erin Collins, the National Taxpayer Advocate, an arm of the IRS focused on taxpayer interests.
She added, “Equally important is the IRS’s announcement today that it will take a phased-in approach and only require reporting of transactions over $5,000 next year. Taxpayers and tax professionals need certainty and clarity about what is expected of them.
Some Republican lawmakers said the IRS’s second consecutive delay was a sign that the $600 rule has caused confusion and is “unworkable”.
“Given that even Democrats now admit this law is unworkable and are trying to rewrite a key provision, it’s time to scrap it and start over,” said Representative Jason Smith of Missouri, the chairman of the House Ways and Means Committee.
A provision in the 2021 American Rescue Plan requires users to report transactions through payment apps, including Venmo, Cash App and others, for goods and services that equal or exceed $600 in a calendar year. Before the ARP provision – and now for this year – the reporting requirement only applied to sales of goods and services to taxpayers who receive more than $20,000 and have more than 200 transactions.
Pushback from online sellers
The rule had sparked significant pushback from online selling platforms such as eBay and Etsy, with some of the companies arguing that the reporting requirement would create confusion and difficulties for sellers who rely on these platforms to make a living.
At the same time, Republican lawmakers had denounced the plan as government overreach, arguing that it could hurt people who rely on payment apps to reimburse friends and family members.
IRS officials said one reason for the delay is taxpayer confusion about what types of transactions are reportable under the new law. For example, transactions between friends and family, such as selling a couch or car or reimbursing a friend for pizza, would not be reportable. Similarly, the sale of used items such as clothing or furniture at a loss through a service such as eBay could also generate a 1099-K, although these sales would not create a tax liability.
Still other sales could be taxable, such as a small business selling goods or services for a profit.
“This phased-in approach is the right thing to do from a tax administration standpoint, and it avoids unnecessary confusion,” IRS Commissioner Danny Werfel said in a statement. “It is clear that an additional delay for the 2023 tax year will avoid problems for taxpayers, tax professionals and others in this area.”
