The IRS announced it will defer by one year a controversial mandate that would have required more online vendors and gig workers to report their revenue to the federal tax agency.
The rule change would have compelled payment companies like Venmo, Paypal, and Cash App to send 1099-K tax forms to anyone who receives more than $600. Previously, such payment providers were only required to declare their users’ income to the IRS if they had 200 or more transactions and $20,000 or more in revenue.
Online selling platforms such as eBay, Etsy, and Poshmark fought vehemently against the proposal to lower the reporting threshold to $600, arguing that it would cause confusion, while Republican members of Congress argued that the proposal was an example of government overreach that would catch people using apps to send money to friends.
Acting IRS Commissioner Doug O’Donnell said in a statement released on Friday, “The IRS and Treasury heard a number of concerns” about the revisions. The IRS will delay implementation of the new rule “to help smooth the transition and assure clarity for individuals, tax professionals, and industry,” according to a statement.
“The extended time will aid in reducing misunderstanding during the forthcoming 2023 tax filing season and provide taxpayers more time to prepare for and comprehend the new reporting obligations,” he added.
Transferring over $20,000? You’ll still get a form.
Even though the delay means that during the 2023 tax season, people will only receive tax forms if they meet the previous requirements of selling more than $20,000 and engaging in more than 200 transactions annually, anyone who makes a profit from any type of income is legally required to pay tax on that money.
This means that even if individuals do not receive a tax form, they must still record their income and pay tax on it. Nonetheless, the IRS emphasized that personal transactions, such as reimbursing a buddy for a shared meal, are not intended to be tracked by the now-delayed regulation on reporting $600 in side-gig revenue.
Friday, the IRS highlighted that the rule is not designed to track personal transactions such as sharing the cost of a vehicle ride or meal, birthday or holiday gifts, or paying a family member or someone for a home bill.
Some tax experts had also cautioned that individuals who use apps for both commercial and personal transactions could be misled by the new paperwork and end up overpaying in taxes or spending countless hours untangling their finances.
According to experts, it is also likely that many internet sellers who sell modest quantities as a pastime do not manage their true income and expenses associated to their online efforts.
This is an evolving narrative.
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