IRS again delays $600 payment reporting rule for PayPal, Venmo and more – CBS News

The IRS said Tuesday it is again delaying implementation of a 2021 law that requires payment platforms like Venmo, Paypal or Cash App to send tax forms called 1099-Ks to anyone who receives more than $600 in the current tax year has.

It is the second year in a row that the IRS has delayed adoption of the new regulation, after the tax agency last year postponed the new law until 2023. On Tuesday, after a hearing, the IRS said it would delay the regulation for another year “to reduce taxpayer confusion.” from taxpayers, tax professionals and payment processors.

Without that delay, an estimated 44 million 1099-K forms for the current tax year would have been sent to millions of taxpayers, even though they may not have owed taxes on the payments and were not expecting such a form, the IRS said.

Instead, the IRS will rely on a pre-existing threshold — more than 200 transactions with income greater than $20,000 — to send 1099-Ks in early 2024 to complete the current tax year’s tax returns.

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Reporting threshold increased to $5,000

In a major legislative revision, the IRS announced that it will transition to the new rule starting in the 2024 tax year by increasing the reporting threshold from $600 to $5,000. This means that people who receive more than $5,000 in payments through PayPal and other apps in 2024 will receive tax form 1099-K in early 2025 to complete their 2024 tax return.

For the 2025 tax year, the threshold would be reduced to $600 unless the IRS makes further changes.

“The IRS’s decision to delay implementation of the new Form 1099-K reporting requirements is good news for taxpayers, tax professionals and payment processors,” said Erin Collins, the National Taxpayer Advocate, a branch of the IRS that focuses on the interests the taxpayer concentrates.

She added: “Equally important is today’s announcement from the IRS that it will take a phased approach and only require reporting of transactions with a total value of more than $5,000 next year. Taxpayers and tax professionals need certainty and clarity about what is expected of them.”

Some Republican lawmakers said the IRS’s second straight delay was a sign that the $600 rule had caused confusion and was “unworkable.”

“Given that even Democrats now admit that this bill is unworkable and are attempting to rewrite an important provision, it is time to scrap it and start over,” said Rep. Jason Smith of Missouri, the chairman of the House Ways and Means Committee.

A provision in the 2021 American Rescue Plan requires users to report transactions on payment apps like Venmo, Cash App and others for goods and services valued at $600 or more in a calendar year. Prior to the ARP provision – and now for this year – the reporting requirement only applied to sales of goods and services to taxpayers that received more than $20,000 and made more than 200 transactions.

Pushback from online sellers

The regulation sparked significant resistance from online sales platforms such as eBay and Etsy. Some of the companies argued that the reporting requirement would cause confusion and difficulty for sellers who rely on these platforms to make a living.

At the same time, Republican lawmakers had condemned the plan as government overreach and argued that it could harm people who rely on payment apps to compensate their friends and family.

IRS announces new tax brackets for 2024

IRS officials said one reason for the delay is taxpayer confusion about what types of transactions are reportable under the new law. For example, transactions between friends and family members, such as selling a couch or car or paying a friend back for a pizza, would not be reportable. Likewise, selling used items like clothing or furniture at a loss through a service like eBay could also result in a 1099-K, even though those sales wouldn’t result in a tax liability.

Other sales could also be taxable, such as a small business selling goods or services for a profit.

“This phased approach is correct for tax administration purposes and avoids unnecessary confusion,” IRS Commissioner Danny Werfel said in a statement. “It is clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area.”

– With reporting from the Associated Press.

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