IRS delays new tax reporting rule on Venmo and PayPal payments over $600

The Internal Revenue Service said Friday it is delaying a new tax reporting requirement targeting Americans who have earned over $600 online through third-party payment apps like Venmo or PayPal.

“The IRS and Treasury have heard a number of concerns about the timing of implementing these changes as part of the U.S. bailout,” said Doug O’Donnell, acting IRS commissioner. “To ease the transition and provide clarity for taxpayers, tax practitioners, and the industry, the IRS will delay the implementation of the 1099-K amendments.”

The delay comes after a fierce backlash from Republican lawmakers, small business owners and tax experts to the lower reporting requirement.

The rule change — approved by Democrats in March 2021 with the passage of the U.S. bailout — would have required payment platforms such as Venmo, PayPal, Etsy and Airbnb to submit Form 1099-K to the IRS and tax authorities. users if their transactions totaled more than $600. during the year. Previously, payment apps had to send users Form 1099-K if their gross income exceeded $20,000 or if they made 200 separate transactions in a calendar year.

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“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,” O’Donnell said.

The change was intended to crack down on Americans who evade taxes by not reporting their full gross income. However, critics say it amounts to government overkill at its worst and could ultimately hurt small businesses. In recent weeks, lawmakers have rushed to try to raise the reporting threshold to $10,000 to narrow the scope of the new rule; however, they ultimately failed to add it to the $1.7 trillion government funding package.

The Treasury Department has come under pressure to delay implementing the rule, including from industry group National Association of Tax Professionals, over concerns it could cause serious confusion for taxpayers and further bog down the IRS. .

In a memo this week, NATP called the rule “too onerous” and warned it could create “undue problems for taxpayers” as well as the already overstretched IRS, which continues to struggle. work their way through a backlog of unprocessed tax returns from previous years.

To be clear, business owners are already required to report this income to the IRS. The new rule simply means that the IRS will determine what business owners have earned on cash applications, regardless of what that individual actually reports on their 1099-K, because it expands the scope of the threshold.

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Form 1099-K is used to report payments for goods and services received by a business or individual during the calendar year, but there are certain gross income exclusions that are not subject to income tax. , including amounts from the sale of personal items at a loss, amounts sent as refunds, and amounts sent as gifts.

“These transitional guidelines apply only to information returns filed or provided by brokers,” the IRS said. “In contrast, taxpayers are still required to report any income they receive from transactions involving digital assets.”

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Once implemented, the lower reporting threshold threatens to wipe out millions of Americans who make money online. About one in four Americans earn extra income by selling something online, renting out their home or using a digital platform to work, according to Pew Research Center.

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