The IRS has once again delayed implementing a new reporting rule that would significantly impact taxpayers receiving business income through payment apps and online marketplaces like Venmo, CashApp, Etsy, and Airbnb.
Background of the Rule Change
Originally part of the American Rescue Plan of 2021, the rule change aimed to lower the reporting threshold for third-party payment platforms. Previously, these platforms were required to issue a 1099-K form to users who conducted more than 200 business transactions totaling over $20,000. The new rule would have reduced this threshold to just $600 in annual business income from one or more transactions.
Implication of the Delay
Due to concerns about taxpayer confusion and the need for a smoother compliance process, the IRS has postponed the implementation. For the 2023 tax year, the existing threshold of 200 transactions and $20,000 remains in place. This decision potentially avoids the issuance of 44 million additional 1099-K forms.
Future Plans
For the 2024 tax year, the IRS plans a “phase-in” approach. The threshold for issuing a 1099-K will be raised to $5,000 in business transactions, rather than the $600 initially proposed. This phased approach allows the IRS to refine its processes and address the concerns of taxpayers and stakeholders.
Response from Stakeholders
The Coalition for 1099-K Tax Fairness, which includes various payment platforms and online marketplaces, views this delay as a chance for Congress to devise a permanent, bipartisan solution. Both Democratic and Republican senators support a higher income threshold.
Tax Obligations Unchanged
It’s important to note that this delay does not alter the tax obligations of individuals and businesses. Taxpayers have always been required to report income from business activities, and the eventual rule change will make it more challenging to underreport income. This change will also provide greater transparency regarding the amount of business income generated through these third-party platforms.
Conclusion
While the IRS’s decision to delay the implementation of the new reporting rule provides temporary relief, taxpayers should remain aware of their ongoing obligation to report all business income. The phased introduction of the new threshold in 2024 represents a move towards more stringent reporting, aiming to enhance tax compliance and transparency in digital transactions.