The Internal Revenue Service is delaying the implementation of a tax policy change by a year that was fought by online marketplace companies and payment platforms.
The change was set to take effect in the upcoming tax filing season and raised fears of mass confusion among casual online sellers and a potential avalanche of new tax reporting paperwork.
The overhaul of the tax code was included in President Biden’s American Rescue Plan Act of 2021. Previously, users of sites like eBay, Etsy, PayPal, Venmo and others received a 1099-K tax reporting form for goods and services sold only after they earned $20,000 on 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 opposing 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 recovery.
“The IRS and Treasury heard a number of concerns regarding the timeline for implementing these changes under the U.S. bailout plan,” Acting IRS Commissioner Doug O’Donnell said in a news release. “To ease the transition and ensure clarity for taxpayers, tax professionals and the industry, the IRS will delay the implementation of the 1099-K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing and provide more time for taxpayers to prepare and understand the new reporting requirements.”
Some companies that only needed to issue a couple thousand 1099-Ks under the previous rules were looking at a couple hundred thousand, according to another official cited by CNN.
In a blog post Friday, Seattle-based BikeList, a marketplace for bikes and bike parts 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 defer was “a big win for our marketplace sellers and relief for us as a startup.”
Meanwhile, legislation 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 sales 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 the SNOOP Act, to crack down on the tax code.