Some lawmakers want to increase 1099-K tax reporting thresholds

As the end of the year approaches, there are debates about tax reporting for business transactions across payment apps like Venmo and PayPal, as well as e-commerce companies like eBay, Etsy and Poshmark.

Some lawmakers are pushing to increase the IRS reporting threshold for Form 1099-K, which covers third-party business payments. Taxpayers who use a payment app to process transactions for a side hustle or small business, or who sell a product or service through an e-commerce website, will receive a Form 1099-K at tax time reporting that income if their transactions exceed the threshold.

The American Rescue Plan Act of 2021 dramatically lowered the threshold, and now lawmakers want to change course.

“There is bipartisan interest in the rollback because of all the misinformation that is out there,” said Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, who addressed the issue on CNBC’s “Squawk Box” last week.

More from Personal Finance:
These 3 steps can help you cover rising college costs
Instead of a recession, we could instead be in an “empire recession.”
How to Achieve 0% Capital Gains Using a Lesser-Known Tax Strategy

How the tax rule change affects payment app users

Before this year, you may have received Form 1099-K if you had more than 200 transactions totaling over $20,000. But that 2023 The threshold is only $600and even a single transaction can trigger the form.

This change is expected to result in a flood of Forms 1099-K in early 2024, when taxpayers typically receive so-called “information returns” from employers and financial institutions. Duplicate copies go to the IRS.

The threshold does not apply to personal transfers through apps like Venmo and PayPal, such as sending money to a friend or family member. However, experts have expressed concern that some taxpayers may now accidentally receive a 1099-K, which could cause headaches when filing taxes.

And considering that just one transaction over $600 is enough to trigger the form, even someone making a one-time sale of, say, an old sofa or hot concert tickets could find themselves with an additional tax document to contend with must.

The lower 1099-K reporting thresholds have been controversial amid increasing scrutiny from the IRS, particularly among online sellers, gig economy workers and others worried about confusion and higher taxes.

There is bipartisan support for the change

The Republican-led House Budget Committee in June approved legislation to reset the reporting thresholds to the 2022 level. There are also proposals in the Senate, including this Bureaucracy Reduction Actintroduced by Sens. Sherrod Brown, D-Ohio, and Bill Cassidy, R-La., in May, which aims to raise the threshold to $10,000.

But advocates say the lower 1099-K threshold will reduce the tax burden. “[Information returns] “Don’t actually raise taxes,” Rosenthal said. “They just help determine taxes already owed.”

Form 1099-K has “always been problematic”

Meanwhile, there are ongoing concerns among tax professionals about the 1099-K change. The American Institute of CPAs in June renewed his support for raising the reporting threshold to avoid “significant confusion in the tax system.”

In one June letter The AICPA supported the Senate Red Tape Reduction Act and expressed concerns about an administrative burden on taxpayers and the IRS, particularly when Forms 1099-K incorrectly include personal transactions such as gifts or refunds.

Form 1099-K has always been problematic.

Phyllis Jo Kubey

Immediate Past President of the New York State Society of Enrolled Agents

“Form 1099-K has always been problematic,” said Phyllis Jo Kubey, a New York-based enrolled agent and past president of the New York State Society of Enrolled Agents. “Even in the older version with the higher thresholds and higher number of transactions, it often simply did not accurately reflect what taxable income should be.”

She said that for businesses that sell goods, Form 1099-K may not accurately reflect returns or adjustments. “But if the IRS has a document that says ‘X’ on it and you report ‘Y’ on your tax return, that could trigger more scrutiny, adding another level of time, expense and hassle to the People don’t need it.” Kubey said.

How to prepare for the 1099-K reporting change

Even if you don’t receive a Form 1099-K, business payments are still taxable, and experts say it’s a good time to start organizing.

Regardless of the payment platform, it’s important to be “familiar with the systems,” know where to access payment information and keep your account open, said Albert Campo, certified public accountant and president of AJC Accounting Services in Manalapan, New Jersey.

“Our main advice is to make sure you get this [payment] Information as soon as you have it available,” which could save time next filing season, he said.

Russell Falcon is an automatic aggregator of the all world’s media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials, please contact us by email – The content will be deleted within 24 hours.

Related Articles

Back to top button