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The Internal Revenue Service on Friday gave millions of Americans a one-year reprieve on new tax-reporting requirements, delaying implementation of a law that requires e-commerce platforms such as
eBay,
and
to give the tax agency information on users with more than $600 in revenue.
The delay means the platforms won’t have to send sellers and the IRS a blizzard of 1099-K tax forms early in 2023, and it gives opponents of the $600 threshold more time to push for a change in the law next year.
“The additional time will help reduce confusion during the coming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements,” said acting IRS Commissioner Doug O’Donnell.
Congress passed the $600 threshold for Form 1099-K reports as part of the American Rescue Plan Act in March 2021, scheduling it to take effect for tax year 2022. Until the change, platforms had to report users’ income to the IRS if they had more than 200 transactions and $20,000 of revenue. Lawmakers lowered the threshold to boost tax compliance in an area where it is often lacking—unreported business income.
In the waning days of this year’s congressional session, lawmakers in both parties discussed raising the $600 threshold or delaying implementation. After those efforts failed this week, the IRS stepped in with the delay. Treasury and IRS officials said Friday that they hope to work with industry groups over the next year to make sure the forms go to the right taxpayers.
The $600 threshold would affect many gig workers who are independent contractors and haven’t been reporting income on their tax returns. Paying taxes on those earnings could come as a jolt.
The issues are different for many sellers on eBay and similar platforms, especially “casual” resellers cleaning out closets and attics. The gross revenue on the form isn’t necessarily all income. Such vendors may not owe any tax if they are selling items for less than they paid—or, when it comes to selling inherited items, less than the item’s value on the date of death.
Although the 2021 tax change wouldn’t have required these sellers to submit records with their tax returns to support deductions, it underscored the necessity of keeping such records in case of an IRS audit. It also provided the agency with a way to find some platform users with large amounts of unreported income. The IRS uses document-matching software to cross-check the 1099 forms with taxpayers’ returns and choose some for scrutiny.
The delay doesn’t change what income is taxable, just what information the IRS will receive. Sellers and gig-economy workers must still track and report their income.
The reporting rules are intended only to capture business transactions, not people using Venmo or other payment apps for gifts or splitting the cost of meals.
Write to Laura Saunders at laura.saunders@wsj.com and Richard Rubin at richard.rubin@wsj.com
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