Do you sell something online like used clothes, furniture, exercise equipment, or even concert tickets in 2022? You were set to face new tax reporting requirements that you likely never had before. In 2021, Congress significantly lowered the filing threshold for Form 1099-K reporting for online transactions. Previously, the changes were set to take effect in 2023, but the IRS pushed them back one year. 

How much do you know about IRS Form 1099-K and how the new reporting rules might affect millions of everyday Americans? Let’s play “Two Truths and a Lie” to find out. 

Can you identify which of the three following statements about Form 1099-K new reporting rules is a lie? 

A. To fund the ARP, Congress lowered the threshold that triggers income reporting for third-party transactions on IRS Form 1099-K to just $600 through any number of transactions.

B. The new reporting rules will discourage individuals from online reselling and engaging in gig work.

C. Receiving a Form 1099-K on third-party transactions of at least $600 means that a tax bill is due. 

Let’s take these statements one at a time:

A. TRUTH! Before the new reporting rules, the filing threshold for Form 1099-K reporting was set at $20,000 in payments and 200 transactions in a calendar year. At this threshold, few users of third-party payment networks were impacted. Congress changed this in 2021 to just $600 and any number of transactions to fund the inflationary American Rescue Plan (ARP). Tens of millions of new 1099-K forms would be sent to individuals. These individuals make small transactions using third-party online apps and websites, such as those who resell children’s clothing or concert tickets, those who transfer money to friends and family to pay for dinner, or those who provide babysitting or tutoring services. 

B. TRUTH! Nearly 70% of casual online sellers say they will stop selling online in response to the new requirements. Even though most individuals do not depend on online selling as their primary source of income, many sell online to help pay for necessary personal expenses, such as medicine, housing, and clothing. A survey by the 1099-K Coalition reveals how economically damaging this new reporting requirement will be to casual online sellers. Women are especially affected as research indicates that women constitute a greater share of gig-economy workers if transportation platforms such as ridesharing and delivery apps are excluded. 

C. LIE! This is not necessarily the case. The IRS considers the sale of pre-owned goods to be non-taxable income, so long as they were resold for less than the original purchase price. However, the burden will be on casual sellers to provide proof (such as a receipt) of the original purchase price or that they earned no taxable income. Receiving a Form 1099-K may confuse individuals about what kind of income from online sales should be reported or may lead them to over-report income.

Bottom Line: 

Even though the IRS unilaterally delayed implementation of the new reporting rules for one year, if the rules are not repealed, some 30 to 50 million new 1099-K forms are expected to be sent to tax filers and the IRS in the future. Selling just $600 or more will trigger mandated reporting of income on Form 1099-K and lead to increased confusion, compliance costs, and perhaps even a tax bill. Individuals may receive forms from multiple vendors, which will increase their compliance burdens, cause unnecessary confusion, and may deter online selling in the future. 

To learn more about the new IRS Form 1099-K reporting rules and how they might impact you, read this month’s Policy Focus HERE.