The Internal Revenue Service is delaying by one year the implementation of a tax policy change that was being fought by online marketplace companies and payment platforms.
The change was due to go into effect in the upcoming tax-filing season and was sparking fears of mass confusion among casual online sellers and an avalanche of new tax reporting paperwork.
The revision to the tax code was included in President Biden’s American Rescue Plan Act of 2021. Previously, users of such sites as eBay, Etsy, PayPal, Venmo and others received a 1099-K tax reporting form for goods and services sold only after they made $20,000 in a year or had more than 200 transactions. The policy revision lowered the threshold to $600 in earnings.
Seattle-area companies including OfferUp, Rover and BikeList were among those opposed to the change and lobbying against it as the Coalition for 1099-K Fairness.
The IRS responded Friday to concerns from such companies as well as lawmakers involved in the pushback.
“The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan,” said Acting IRS Commissioner Doug O’Donnell in a news release. “To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”
Some businesses that only had to issue a couple thousand 1099-Ks under the prior rules were looking at a couple hundred thousand, according to another official quoted by CNN.
In a blog post Friday, Seattle-based BikeList, a bicycle and bike parts marketplace that launched this summer, said the proposed rule change was “incredibly annoying and confusing.”
Dan Marx, chief technology officer at the three-person company, told GeekWire that the IRS decision to delay was “a big win for our marketplace sellers and relief for us as a startup.”
In the meantime, legislation being sponsored by Democrats and Republicans in both houses of Congress seeks to raise the threshold back above $600. New Hampshire Rep. Chris Pappas is among those who want to raise the sale reporting threshold to $5,000. Tennessee Sen. Bill Hagerty is among those pushing a return to $20,000, introducing a bill called “Stop the Nosy Obsession with Online Payments,” or SNOOP Act, to strike the tax code provision.