The Internal Revenue Service announced Friday a one-year delay of new reporting requirements for Venmo, Paypal, Cash App or other third-party peer-to-peer payment apps. Online retailers and a number of members of Congress have been calling for a delay of the rule before it takes effect next year.
As part of the American Rescue Plan Act of 2021, the rule required people who earned more than $600 on peer-to-peer payment apps to report the figure as income to the IRS. It also required the payment apps to report to the IRS all those who earned more than the allotted threshold. The previous reporting threshold was 200 transactions or $20,000.
Taxpayers are still required to report their total income but payment apps will not need to report to the IRS those customers exceeding the new threshold for the 2022 tax year. The lower reporting threshold requirement will now not take effect till the 2023 reporting tax season, per the IRS’s recent announcement.
“The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan,” Acting IRS Commissioner Doug O’Donnell said in a statement. “To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes.”
O’Donnell added that he hopes the additional time will clear up any confusion about the rule before the 2023 tax filing season.
The rule change faced criticism this past year from numerous political and business figures. Small business leaders called for the rule to be delayed over confusion about the rule change in the general public. Democratic and Republican members of Congress complained the new rule would create an unnecessary burden on taxpayers.
“The 1099-K form only applies to business accounts, but this new law will confuse a lot of Americans who may not think of themselves as a small business,” Republican West Virginia Rep. Carol Miller wrote in an October op-ed. “Is a teenager babysitting the neighbors’ kids now in the child care business? Are roommates who split rent now property managers? Of course not, but the IRS will be treating them like they are.”
New Hampshire Democrat Rep. Chris Pappas told the press in October he was working on a fix. “I think this is something that’s critically important to settle before the end of the year, especially to prevent individuals from overpaying their taxes or just experiencing confusion around receiving these forms for sales where really there was no taxable income.”
Esty, eBay and other online merchants and payment platforms lobbied Congress to delay the rule. They formed the Coalition for 1099-K Fairness to protect Americans who have had little time to prepare for the change.
“It’s really confusing. It’s a really bad policy,” Etsy CEO Josh Silverman told the media. Press reports show he and eBay CEO Jamie Iannone made a trip to Washington in December as Congress debated the $1.7 trillion omnibus.
Iannone said he supported the American Rescue Plan before a the last-minute $600 threshold rule was injected. He contends that the rule will not have the intended effect. Iannone predicted increased confusion, frustration, cost increases and tax overreporting by “those Americans who need the extra income the most.”