The Internal Revenue Service has decided yet again to delay implementing a new rule that would’ve affected loads of taxpayers who receive money through online marketplaces and payment apps.
This week, the IRS said it wouldn’t be lowering the threshold for the number of and total amount of transactions that require companies to provide taxpayers with a 1099-K form.
The new rule was enacted through the American Rescue Plan of 2021. Once implemented, it would reduce the requirement for third-party companies to issue 1099-K forms to people who earned or received money through their platforms.
The current threshold is 200 business transactions in one year, with a total amount of earnings of $20,000. The new rule will reduce that limit to $600 in one year for at least one business transaction.
Ever since the rule was announced, it has been criticized by gig workers, freelancers and small business owners – as well groups that represent those people. It’s been estimated that the new IRS rule could result in 44 million additional 1099-K forms being sent to taxpayers.
For now, though, that rule won’t go into effect, after the IRS decided to delay implementation of it for the second year in a row.
The agency explained that the reason it was delaying implementation again was concern about whether taxpayers would be confused, as well as the need to make it easier for everyone to comply with the new rules.
Danny Werferl, the commissioner of the IRS, said:
“We spent many months gathering feedback from third-party groups and others, and it became increasingly clear we need additional time to effectively implement the new reporting requirements. We want to make this as easy as possible for taxpayers.
“We will work to make the new reporting requirements easier for them, and we’ll work closely with third-party groups, tax professionals and others to find the smoothest path to ensure compliance with the law.”
Money earned through third-party sites and apps such as Airbnb, Etsy, CashApp, Venmo, PayPal and many others all would be subject to the new rule.
Instead of going drastically to the new $600 threshold in 2024, the IRS said this week that it would “phase-in” that new rule. Third-party companies will now issue a 1099-K to any person or entity that has business transactions that exceed $5,000 for the year.
As the agency said:
“This phased-in approach will allow the agency to review its operational processes to better address taxpayer and stakeholder concerns.”
A group called the Coalition for 1099-K Tax Fairness said that this delay by the IRS will allow Congress members the time necessary to devise a “permanent bipartisan fix” to this rule.
As the group’s lobbying leader, Arshi Siddiqui, said:
“The Biden Administration’s decision represents a victory for common-sense tax policy by ensuring that consumers are not facing a tsunami of 1099-Ks in January.”
The new rule won’t change the tax burden that’s placed on any taxpayer, because it’s always been required to report any money you earn from business-related activities.
The difference is that under the new rule, the IRS will learn about the business income from third-party platforms.