The IRS on Tuesday said 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 consecutive year the IRS has delayed enacting the new regulation, after the tax agency last yearuntil 2023. On Tuesday, the IRS said it will push the regulation back another year “to reduce taxpayer confusion” after hearing from taxpayers, tax professionals and payment processors.
Without that 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 been expecting such a form, the IRS said.
Additionally, the IRS said that starting in tax year 2024, it will raise the basic reporting threshold from $600 to $5,000 as it phases in the new rule.
A provision in 2021 American Rescue Plan requires users to report transactions through payment apps including Venmo, Cash App and others for goods and services meeting or exceeding $600 in a calendar year. Before the ARP provision — and now for this year — the reporting requirement applied only to the sale of goods and services to taxpayers who receive over $20,000 and have over 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 decried the plan as government overreach and argued 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 over what sorts of transaction are reportable under the new law. For instance, transactions between friends and families, like selling a couch or car or repaying a friend for pizza, would not be reportable. Likewise, selling used items such as clothing or furniture for a loss through a service like eBay could also generate a 1099-K, even though those sales would create no tax liability.
Yet other sales could be taxable, such as a small business that is selling goods or services for a profit.
“Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion,” IRS Commissioner Danny Werfel said in a statement. “It’s clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area.”
—With reporting by the Associated Press.