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The IRS has delayed for a year when payment services such as PayPal and Venmo and e-commerce companies such as eBay, Etsy and posh mark will have to issue tax forms to people whose business transactions through these platforms exceed $600.
The agency said Friday that these third-party platforms will not have to use this threshold when reporting tax year 2022 transactions on Form 1099-K, which will be sent to both the IRS and to the taxpayer. Instead, they can count on a pre-2022 threshold of over 200 transactions with an aggregate value of over $20,000.
The American Rescue Plan Act of 2021 lowered the threshold to just $600. And even a single transaction can trigger a form.
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“To ease the transition and provide clarity for taxpayers, tax practitioners, and industry, the IRS will delay the implementation of the 1099-K amendments,” said Doug O’Donnell, Acting IRS Commissioner. said in a press release.
“This additional time will help reduce confusion in the upcoming 2023 tax filing season and give taxpayers more time to prepare for and understand the new filing requirements.”
The agency said it will release additional details about the delay, along with guidance for taxpayers who may have already received a 1099-K as a result of changes to the US bailout.
Even without the new reporting requirement in place, income from trading transactions through these platforms is still taxable, meaning sellers must report it. The delay only means that the business activity will not generate a 2022 tax form at this low threshold.
Tax experts had ‘deep concerns’ about $600 threshold
Tax practitioners and consumers alike are likely to applaud the delay.
Tax practitioners had flagged the lower tax filing threshold as a possible problem for filers, with the risk of receiving 1099-K for personal transfers on platforms such as Venmo and PayPal, such as gifts or refunds.
“As tax preparers, we more or less expect the worst,” Albert Campo, a public accountant and president of AJC Accounting Services in Manalapan, New Jersey, told CNBC earlier this month.
“We expect most of our customers to get these things,” he said. “So we’re trying to be proactive about addressing that.”
Last week, the American Institute of CPAs raised “deep concerns” about the $600 tax filing threshold in a letter the Senate Finance Committee and the House Ways and Means Committee.
The trade group said it supports a foundation of the National Taxpayers Union recommendation to raise the threshold to “a level sufficient to exempt occasional or low-level online activity”.
The AICPA said even a $5,000 threshold would be “significant progress.”
—CNBC’s Kate Dore and Kelli Grant contributed reporting.