On Christmas Eve Eve, the IRS delayed what would have certainly been a 2023 tax nightmare.
A new IRS Form 1099-K tax reporting requirement for millions of tax filers was set to go into effect on New Year’s Day. Congress failed to raise the threshold of those who would have to report income made by selling items online or engaging in gig-economy activities, before leaving for Christmas recess.
However, in a last-minute change, the IRS announced that it would unilaterally delay the implementation of the regulation for one year.
This is an immediate victory for millions of women and men who would unfairly be required to report income that they likely shouldn’t be taxed for.
Even if they would not get a tax bill, the increased complexity of their tax returns could lead to new compliance costs. Given that the IRS was likely unprepared for the avalanche of new data coming their way, the tax filing season was setting up to be disastrous.
Delaying the reporting requirement is a short-term win, but the issue is still very much alive. Congress now has more time to either restore the previous threshold that triggers reporting or raise the threshold higher to avoid unintentionally capturing casual sellers and tax filers.
There is bipartisan agreement that something must be done, let’s see if there is enough political will to make it happen.
Speaking out works
In November, our sister organization, Independent Women’s Voice, sent a letter to congressional leaders expressing concern for the impact of this reporting requirement on women:
Women benefit tremendously from engaging in e-commerce and online marketplaces. Moms sell pre-owned clothing and toys that their children have outgrown to generate extra cash for the family. Old items such as bikes, furniture, and electronics can find new homes rather than ending up in landfills thanks to the online resale market. Even tutoring neighbors’ kids or delivering food via apps can provide flexible and steady income.
This new reporting requirement introduces new complexity to the tax situation of many people triggering confusion…
The new reporting threshold will also cause many people financial issues. Nearly 40% of casual sellers said the change poses an economic hardship to them and of these three out of four (74%) said they sell online to help pay for necessary personal expenses. If a taxpayer ignores Form 1099-K on their tax return, they could be taxed for the full amount reported on the 1099-K, even if they sold at a loss.
The American Institute of CPAs shared “deep concerns” about the $600 tax reporting threshold noting:
We are also concerned about the possibility of Internal Revenue Service (IRS) instituting a matching program for 2022 Forms 1099-K that could result in significant taxpayer misunderstanding, and also lead to a growth in the IRS correspondence and processing backlog that still haunts the tax system.
Our voices and those of many others have been heard. In a statement announcing the delay, Acting IRS Commissioner Doug O’Donnell acknowledged the outcry over this change:
The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan. 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.
Congress made a mess by lowering the reporting threshold for online sellers to raise revenue for the inflationary American Rescue Plan in 2021.
Prior to that, tax filers who made over $20,000 in revenue in over 200 transactions would have to report that income. Instead, the liberal lawmakers lowered that reporting threshold to just $600 (and no transaction minimum). Such a low threshold could easily be “tripped over” by selling kids’ clothes or old furniture online, even if at a loss.
Congress has more time to fix this issue. Let’s hope they don’t squander the opportunity.
To learn more, read our January policy focus.