In the event you ran a profitable Etsy business or sold expensive Eras Tour tickets this yr, you might get an unexpected tax form come spring. Sellers receiving payments over certain amounts via some platforms and online marketplaces will soon be issued Form 1099-Ks under revised IRS rules.
When a recent law is fully implemented in 2026, firms including Venmo, PayPal, eBay and Etsy can be required to distribute the shape to any business or seller whose gross transactions exceed a drastically reduced threshold of $600. But amid blowback, the IRS keeps tweaking the way it phases within the controversial policy.
The most recent instance got here just before Thanksgiving, when the IRS announced it intends to offer “relief” for Americans who professionally use payment apps and online marketplaces through 2025. In a Nov. 26 news release, the agency confirmed that payment firms can be required to report gross transactions exceeding $5,000 in 2024.
The brink in 2025 can be $2,500.
In 2021, Congress passed a law imposing these 1099-K reporting requirements that apply to digital payments for goods and services, causing panic in quite a few selling communities. Implementation has been gradual, but at the same time as the IRS slowly rolls out the brand new rules, the changes are facing opposition from critics who say they put a burden on businesses and individuals that transact on several commonly used platforms.
While the IRS says its delays are providing relief, the last word plan to use reporting requirements if sales exceed $600 is seen as an overreach by many Republicans in Congress. The IRS’s recent announcement has already caused several GOP legislators to talk out against the 1099-K change, leaving its future in jeopardy ahead of President-elect Donald Trump’s second term.
Why 1099-K rules keep changing
The American Rescue Act, passed in 2021, created the brand new requirements for Form 1099-K reporting with the goal of improving tax compliance. Previously, the policy was for Form 1099-Ks to be distributed when a seller had a minimum of 200 transactions totaling over $20,000.
Under the American Rescue Act, the forms will as an alternative be issued for people and business for “selling goods or providing a service over $600.” The principles will apply whatever the variety of transactions, in accordance with the IRS.
The IRS provides guidance on which payment networks are affected. The reporting requirements apply to “central organizations” that mediate transactions between buyers and sellers; for instance, “a web based auction payment facilitator like a web based marketplace.” That reportedly includes ticket exchange sites like StubHub, shopping marketplaces like eBay, peer-to-peer payment platforms like PayPal and gig-work firms like Uber.
The lower threshold remains to be being phased in, and it has faced opposition along the way in which from concerned selling platforms and payment firms. Along with issuing the shape to taxpayers, Form 1099-K documentation can also be filed with the federal government, detailing gross transactions to the IRS by Jan. 31 of the following yr.
In late 2022 and late 2023, as firms like Venmo and Ticketmaster were bracing to send out 1099-Ks to thousands and thousands of sellers, the IRS announced delays to the implementation of the reporting requirements. But barring any additional changes, the ultimate threshold of $600 will go into effect in 2026. In 2025, it should be $2,500.
In the event you receive a Form 1099-K, it likely means you’ll have to report something on Line 8 of your tax return.
Lawmakers: Lower thresholds are a burden for businesses
Ever because the IRS announced the $5,000 threshold for 2024 on Nov. 26, several key Republican lawmakers within the House Ways and Means committee have raised the alarm, including Rep. Jason Smith, R-Mo., the chairman. The law creates requirements “burying gig staff under a mountain of paperwork,” he said in a statement.
A bill from Rep. Carol Miller, R-WV, would repeal the law creating the $600 threshold. In a press release, she said businesses have been “paralyzed with confusion” as a consequence of the many delays.
“I’m confident that with Republicans in charge, we are going to raise the reporting threshold so Americans paying rent through Venmo or selling used exercise equipment on eBay aren’t being taxed as a small business,” Miller said.
It is a gray area that is difficult to contend with. While many personal transactions like reimbursements from friends for shared dinners usually are not taxed, a seller who makes profit, even when that is from concert tickets or the sale of clothing items of their closet, could should pay income tax since the IRS has been alerted to the transaction.
The important thing word is “could.” For sellers, a 1099-K doesn’t necessarily mean you could have to pay taxes on a sale. For instance, for those who sell $5,000 of a very good on eBay but make no profit, you’ll receive a 1099-K form from eBay, but you would not owe the IRS.
In truth, the IRS argues that taxes aren’t changing in any respect: You were at all times imagined to include all income in your tax return, anyway. But profitable businesses receiving payments digitally could find yourself paying more in taxes with the extra requirements because the tracking increases.
Although the brink is ready for 2024, the long run of the 1099-K debate is unclear. Congress could theoretically pass laws changing the law, or recent IRS leadership could alter the implementation timeline. With Republican majorities in the subsequent Congress and Trump taking office, lawmakers are expected to make an enormous push to renew Trump’s 2017 tax cuts and will try and undo other Biden-era tax law changes in the method.
More from Money:
5 Best Tax Relief Firms of 2024
Why States With No Income Tax Aren’t as Reasonably priced as They Seem
10 Ways Millionaires (Legally) Keep Their Taxes Down in Retirement