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Despite Delay in Implementation, New 1099-K Reporting Provision May Still Confuse Taxpayers

S.J. Steinhardt
Published Date:
Jul 26, 2023

The lower filing threshold for Form 1099-K—the information return used for reporting transactions involving payment cards and third-party networks—has been delayed for a year but, if it becomes effective as scheduled, it could still confuse and frustrate taxpayers, Accounting Today reported.

Originally, the IRS lowered the threshold from more than $20,000 in payments from more than 200 transactions to $600 in total payments for tax year 2022. It delayed the implementation date in the face of opposition from business groups, lawmakers and others who feared the prospect of surprise tax bills or audits. The form applies to service apps such as Venmo, CashApp, Etsy, StubHub and Airbnb.

More than halfway into 2023, it is not yet clear how the IRS will clear up the confusion caused by the decision to delay the new rule, Demian Brady, vice president of research at the National Taxpayers Union Foundation, told Accounting Today.

"Not only has the IRS underestimated the sheer volume of 1099-K forms set for release later this year, it has not adequately accounted for the time burdens imposed on taxpayers," Brady said. "Getting these calculations is important so that policymakers can make sure that the costs imposed by tax laws are not disproportionate to the revenue the government hopes to collect. The confusion and complexity doesn't just impact taxpayers and preparers, but also the IRS itself."

Brady also said that “taxpayers could easily exceed the new threshold by … selling used personal goods for less than they were purchased for, or sending money to friends to reimburse them for concert tickets.” Even though these are not taxable events, “the IRS and the taxpayer would still get a 1099-K at the end of the year,” he said. “Many taxpayers will be misled into thinking they have a tax obligation or lack the substantiation to prove to the IRS that they should not be taxable on the full amount."

He added that these taxpayers will be confused by the receipt of a 1099-K form and end up over-reporting their income.

One legislative proposal to alter the rule was introduced in the Senate in May. The bill would raise the reporting threshold to $10,000.

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