Nov 23, 2023 10:06 AM EST
Those who received more than $600 this year using Venmo, PayPal, or other payment applications are eligible for a break from the IRS.
On Tuesday, the agency said that it is once more postponing the enforcement of a 2021 regulation that mandates that payment companies like Venmo, Paypal, or Cash App issue 1099-K tax forms to anyone who received more than $600 in the current tax year.
The IRS postponed the new law's implementation until 2023 last year, marking the second year in a row that it has done so.
In response to feedback from individuals, tax experts, and payment processors, the agency announced on Tuesday that it will postpone the rule for an additional year in an effort "to reduce taxpayer confusion".
The IRS calculated that if there hadn't been a delay, millions of taxpayers for the current tax year would have received 44 million 1099-K forms, even though they might not have due taxes on the payments and wouldn't have anticipated receiving such a form.
Rather, the IRS will send 1099-Ks in early 2024 to finish the current tax year's forms based on an existing threshold, which is more than 200 transactions that surpass $20,000 in income.
Eric Bronnenkant, CPA and head of tax at Betterment, pointed out in an email that the regulation change is expected to affect "a significant portion of taxpayers" because it would have applied to anybody receiving more than $600 via a payment app this year.
He did point out that all taxable income is still required to be reported to the IRS in spite of this change. "[T]here need to be guideposts in place so taxpayers can navigate what should/shouldn't be reported," he stated.
The IRS announced a significant change to the legislation, stating that it will raise the reporting threshold from $600 to $5,000 beginning in tax year 2024 in order to move toward the new regulation. Accordingly, in order to finish their 2024 tax returns, those who earn more than $5,000 in payments through PayPal and other applications in 2024 will obtain the 1099-K tax form in early 2025.
Unless the IRS makes further modifications, the threshold would drop to $600 for the 2025 tax year.
The National Taxpayer Advocate, representing the interests of taxpayers within the IRS, welcomed the decision to postpone the implementation of the new Form 1099-K reporting requirements.
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Erin Collins emphasized the positive impact on taxpayers, tax professionals, and payment processors. Additionally, she highlighted the importance of the IRS's phased-in approach, focusing on transactions exceeding $5,000 next year, providing much-needed certainty and clarity for taxpayers and tax professionals.
Republicans in Congress said that the IRS's second consecutive delay is evidence that the $600 rule is "unworkable" and has caused confusion.
Users must disclose transactions made through payment apps, such as Venmo, Cash App, and others, for goods and services that total or surpass $600 in a calendar year, according to a 2021 American Rescue Plan requirement. Prior to the ARP provision, which is already in effect for this year, the reporting obligation was limited to sales of goods and services to taxpayers with over 200 transactions and a revenue of more than $20,000.
Online marketplaces like eBay and Etsy have strongly opposed the regulation, claiming that the reporting requirement will confuse and make things harder for sellers who depend on these platforms for their livelihood.
Republican senators criticized the measure at the same time, claiming it was an overreach of government and that it would harm those who depend on payment applications to compensate friends and relatives.
According to IRS officials, taxpayer uncertainty about the kinds of transactions that must be reported under the new rule is one factor contributing to the delay. Transactions involving friends and relatives, such as buying or selling a couch or car, or paying someone back for pizza, would not be required to be reported. Likewise, even though there would be no tax obligation from selling old goods like furniture or clothing on an online marketplace like eBay, doing so might result in a 1099-K.
However, certain sales-like those made by a small firm that makes a profit by selling goods or services-might be subject to taxes.
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