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IRS delays new online sellers’ tax reporting threshold

Provision would affect individuals using online payment systems such as Venmo and gig workers like Uber drivers

Ways and Means Chairman Jason Smith, seen leaving a House GOP meeting on Nov. 7, says the administration’s move may be unconstitutional.
Ways and Means Chairman Jason Smith, seen leaving a House GOP meeting on Nov. 7, says the administration’s move may be unconstitutional. (Tom Williams/CQ Roll Call)

The IRS is postponing a lower threshold for reporting online sales and gig work by another year until 2024, a reprieve that could give lawmakers time to enact a more permanent fix.

The agency is also adding a transition year by setting a $5,000 threshold for transactions in 2024 and delaying the onset of the new $600 threshold until 2025, the IRS announced Tuesday afternoon.

It’s a bold move for the IRS after the $600 threshold for reporting transactions from sales and gig work on platforms like Venmo, PayPal, Uber, Airbnb and eBay was supposed to take effect in 2022, with more tax forms going out for the first time in the 2023 tax season.

But at the end of 2022, the IRS delayed that deadline by a year, and it’s now taking a more extensive step by granting a transition. Some House Democrats have proposed reversing course on the lower threshold by upping it to $5,000, so the agency’s transition year could be a signal of support for that measure although the IRS indicated it’s just buying time to avoid too much confusion.

The IRS said its decision was based on feedback from taxpayers and tax professionals and an attempt to reduce potential confusion if there was a huge jump in the volume of 1099-K tax forms that go out — potentially to people who don’t actually owe taxes.

“The IRS will use this additional time to continue carefully crafting a way forward to minimize burden,” IRS Commissioner Danny Werfel said in a statement. “We want to make this as easy as possible for taxpayers.”

Democrats lowered the bar for tax reporting on online sales and gig work in their 2021 pandemic relief law. They set the new threshold at total transactions worth at least $600, down from $20,000 in at least 200 separate transactions.

Gig working sites and online marketplaces impacted by the heightened reporting have been pressing lawmakers to reverse course. They’ve warned the lower bar for reporting could lead some people selling used goods or a small amount of items online to receive tax forms when they don’t actually owe taxes on the transactions.

For example, selling used goods at a loss wouldn’t create taxable income but could appear that way on 1099-K forms. Personal transactions like repaying a friend on Venmo or sending a cash gift are also among transactions that might show up but shouldn’t be reported, according to the IRS.

There’s bipartisan support in Congress for raising the threshold. Republicans have pushed to restore the $20,000 bar, while a bipartisan Senate bill would set a threshold of $10,000 in at least 50 different transactions and some House Democrats have proposed a $5,000 minimum.

The Senate bill’s lead sponsor, Ohio Democrat Sherrod Brown, in a statement took credit for spurring the administration to delay the new threshold. Brown is up for reelection in an increasingly red state and is considered one of the most vulnerable incumbents.

The decision didn’t sit well with all lawmakers, however. Ways and Means Chairman Jason Smith, R-Mo., said in a statement that the Biden administration was papering over a flawed policy that “goes after Americans for selling concert tickets and used furniture” during an election year. Smith also questioned the move’s constitutionality, arguing that only Congress has the authority to change the law.

The latest IRS timeline could be particularly helpful for lawmakers seeking a change. It’s not clear if lawmakers can agree to and find a legislative vehicle for any tax package this fall, or if that package would include changes to the tax reporting threshold.

But under the latest IRS notice, the $600 threshold won’t be felt until the 2026 tax season, and Congress will likely address a slate of expiring tax provisions under Republicans’ 2017 tax law by the end of 2025.

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