Changing the Form 1099-K reporting threshold may cause many businesses to abandon online marketplaces and gig economy jobs, a survey found.

The threshold for third-party settlement organizations—such as Venmo, CashApp, Etsy, StubHub and Airbnb—was lowered from $20,000 in payments from more than 200 transactions to $600 for tax year 2022. The IRS deferred the change until the 2023 tax year, and it announced another deferral last week. Instead, the IRS will treat 2023 as an additional transition year. And to give individual taxpayers and stakeholders enough lead time, the IRS is planning for a threshold of $5,000 for tax year 2024 as part of a phase-in to implement the $600 reporting threshold.

As a result of the lower threshold, 83 percent of marketplaces expect sellers to leave their platforms. More than half (55 percent) of marketplace sellers and gig workers are reconsidering online selling and on-demand work, the survey by tax compliance software provider Avalara found.

Despite those findings, 90 percent of the marketplaces polled believed sellers on their platform are prepared for changes, and 60 percent of marketplaces believed that third-party sellers on their platforms are "very" prepared for proposed changes. Yet, only 51 percent of marketplace sellers indicated that they are ready to comply with the proposed rule changes.

"Our survey data reveals the need for proactive measures on the part of marketplace sellers, on-demand workers, and online marketplaces to determine how best to comply with a revised   1099-K digital payments threshold," said Scott Peterson, vice president of US Tax Policy at Avalara. "Gig workers and sellers anticipating significant impacts from the proposed IRS changes should seek advisory assistance from a bookkeeper or tax/accounting professional around newfound reporting complexity prior to making big decisions. And businesses, bookkeepers and accounting firms can access cloud-based automation solutions that scale with reporting and form preparation and distribution demands associated with a decreased 1099-K threshold."