Beginning in 2023, anyone selling items through online marketplaces (i.e. eBay, Etsy, Mercari, PayPal, and more) must file an IRS Form 1099-K (for the tax year 2022) if they grossed over $600 in sales for any number of transactions.
Imposes Economic Burden and Increases Complexity and Compliance Costs
- Many sales of used goods by casual online sellers and entrepreneurs would not create any tax liability since the items are often sold for less than what was paid.
- Nearly 40% of online sellers surveyed said the change poses an economic hardship, a significant majority of whom sell online to help pay for necessary personal expenses.
- Two out of three (69%) said they are likely to sell less or stop selling online.
- Family and friends splitting the cost of a meal or sending gifts could also mistakenly receive tax forms.
- Out of confusion, tax filers may not know how to report the sales or over-report income leading to inaccurate filings.
- Tax filers with simple returns may be forced to hire a tax professional to ensure compliance.
- Adjusting tax returns will force the IRS to expend additional resources and may delay the processing of those taxpayers’ returns contributing to the IRS backlog.
Disproportionate Effect on Women
- Women dominate gig economy work when separating out ridesharing and delivery services.
- Women are selling used kids’ clothes, engaged in food/grocery delivery, tutoring, babysitting, and other activities arranged through online apps.
Congress Did This, Congress Must Fix It
- In 2021, Congress lowered the threshold for reporting online sales from $20,000 to $600 and eliminated a transaction minimum.
- Lawmakers sought to raise $8.4 billion from perceived tax avoiders to fund the inflationary $2 trillion American Rescue Plan.
- Congress can restore the original $20,000 reporting threshold or a higher threshold.