Online shopping sites like Etsy, and eBay, and payment network PayPal, among other companies want Congress to change the new $600 reporting threshold for IRS Form 1099-K. The rule, which won't apply for 2023 due to a recent delay from the IRS, affects millions of people who sell on sites like Etsy and Poshmark and get paid through third-party networks like PayPal, Square, and CashApp.
Previously, to receive a 1099-K, you had to have at least 200 third-party payment network transactions totaling more than $20,000 in gross payments. However, due to a tax law change, a single transaction on a payment network of just $600 could trigger a 1099-K. Some people call this the “600 rule.” The IRS delayed the rule Implementation last year, but that change and the most recent 1099-K delay for the 2023 tax year continue to cause confusion.
The Coalition for 1099-K Fairness (a group of online marketplaces that oppose the new rule) has urged Congress to get involved. The goal is to have bipartisan legislation that raises the 1099-K threshold, giving relief to “casual sellers.” That includes millions of people who are paid smaller amounts through third-party networks and haven’t received 1099-K forms in the past.
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More: IRS Form 1099-K: When You Might Get One From Venmo, PayPal, or Cash App
Is the IRS unfairly targeting casual sellers?
PayPal, eBay, and Etsy are among several members of the 1099-K Fairness Coalition that want Congress to ensure that casual online sellers aren’t burdened with the IRS 1099-K form. The organization cites a national survey of sellers where:
- 70% of respondents said they would be deterred from selling online because of the $600 IRS 1099-K reporting requirement.
- 85% percent of those surveyed didn’t think that the IRS should be “targeting people who only occasionally sell online,” according to the survey.
Members of the Coalition for 1099-K Fairness include Aribnb, Bikelist, eBay, Eventbrite, Block, Inc. (for Square and CashApp), ETA, Etsy, Goldin, Kidizen, Mercari, Noihsaf Bazaar, OfferUp, PayPal, Poshmark, Inc., Reverb, Rover, Sports Fan Coalition, StubHub, TechNet, and Tradesy
According to the Coalition, many transactions casual sellers have “involve the sale of used goods that do not create any tax liability.” (Some of those goods are often sold for less than what the seller initially paid). The organization says on its website that a $600 1099-K threshold would disproportionately burden some taxpayers, who could be at risk of over-reporting their income or “forced to hire a tax professional” to ensure compliance with the reporting requirement.
The Coalition also points out that economic hardship is another factor for nearly 40% of online sellers. The majority (close to 75%) said they sell online to help pay for necessary personal expenses.
1099-K: What could Congress do?
The Coalition for 1099-K Fairness wants Congress to pass legislation that would increase the 1099-K reporting threshold. If Congress doesn’t act, the organization says millions of people with relatively small online businesses will receive 1099-Ks for the 2023 tax year. The coalition contends that could cause significant confusion and administrative challenges–not only for networks and sellers but also for the IRS.
In Congress, the Saving Gig Economy Taxpayers Act was reintroduced in the U.S. House of Representatives with bipartisan sponsorship.
- The legislation would repeal the IRS 1099-K $600 rule and restore the previous $20,000/200 transaction threshold.
- It’s unclear right now what will happen with the legislation, which is similar to proposals circulated in Congress in the past but failed to gain enough support to pass.
For now? The IRS in November, announced that the $600 1099-K reporting rule won't apply for the 2023 tax year. But remember that the IRS expects you to report all taxable income on your federal return, whether you receive a 1099-K or not.
Related
- Another Big IRS Tax Change for Online Sellers
- IRS Form 1099-K: When You Might Get One From Venmo, PayPal, or Cash App
- Hobby Income: What It Is and How It's Taxed
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