Home Business Do you make money selling stuff on eBay or PayPal? The IRS is saving you a tax headache — for now

Do you make money selling stuff on eBay or PayPal? The IRS is saving you a tax headache — for now

Do you make money selling stuff on eBay or PayPal? The IRS is saving you a tax headache — for now

By Andrew Keshner

The IRS is holding off on implementing new tax rules that could affect Etsy, eBay and PayPal users.

The Internal Revenue Service is delaying a tax-reporting rule that would have required payment platforms including eBay and PayPal to send out scores of potentially confusing tax forms to their users.

For a second straight year, the federal tax collector is holding off on implementing a rule that would have required certain payment platforms to send tax forms to platform users who got at least $600 for the sale of goods and services.

Until two years ago, only users who made at least 200 transactions totaling $20,000 and above on the platforms were sent the form, known as 1099-K. But in 2021, Congress authorized a $600 threshold, touching off concerns that the platforms’ users could face tax headaches.

The existing $20,000 threshold for the 1099-K forms is the one in use for the upcoming tax season.

The IRS says it will phase in the lower reporting levels. When people file their taxes in 2025 on their 2024 income, it will take at least $5,000 to trigger a 1099-K tax form, the IRS said Tuesday.

The tax reporting is only meant for the money received in exchange for the business sale of goods and services. Reimbursements to friends and family — as in, when you split the lunch bill on Venmo — wouldn’t count. Money beamed over for expenses like rent or groceries wouldn’t count either.

But IRS officials said it became clear they needed more time to communicate the changes and smooth out the transition. Some tax professionals were already worrying about the slew of questions and issues if 1099-K forms were sent to more people.

The IRS estimates that third-party payment platforms would have needed to distribute an estimated 44 million of the 1099-K forms if the new rules hadn’t been paused.

Crowdfunding sites, ticket exchanges, freelance work sites and online marketplaces to buy clothes and crafts are some of payment platforms that need to send out 1099-K forms, the IRS said.

“Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion,” IRS Commissioner Danny Werfel said in a statement. “It’s clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area.”

The lower reporting levels were part of 2021’s American Rescue Plan, a $1.9 trillion pandemic relief package.

The IRS hit pause by itself Tuesday, without congressional approval. The IRS said it has wide authority to implement the tax code in an orderly way, and the agency is especially focused on lowering stress of taxpayers at filing season.

Jamie Iannone, eBay’s CEO, said the Tuesday announcement was good news for people selling items for extra cash and small businesses. “We are grateful that the IRS has acted for the second year in a row to protect these taxpayers from unnecessary and confusing paperwork — and now we need Congress to continue working towards a permanent solution.”

There have been Capitol Hill attempts in fits and starts to increase the threshold. Meanwhile, a coalition of businesses including Airbnb (ABNB), eBay (EBAY), Etsy (ETSY), PayPal (PYPL) and others formed to increase the $600 threshold. The coalition argued that casual sellers, gig workers and small-time businesses would get mired in complex tax laws on when and how to report certain sales.

Last year, an end-of-year legislative push fell short. Some lawmakers still want to raise the reporting level. One bill would have set it at $5,000 and another would have permanently returned to the existing level.

Rep. Jason Smith, a Republican from Missouri who chairs the House Ways and Means Committee, sponsored a bill to revert to the original reporting threshold. The IRS pause on implementation wasn’t just about pursuing an easier tax filing experience, he said.

“This flawed policy targets working-class Americans, and the Biden Administration knows steaming forward during an election year would be a disaster,” Smith said Tuesday. The better move would be to scrap the lower threshold altogether and start over, he said.

There is a limited exception on the reporting rule, the IRS noted. Certain payment platforms may ask a seller to provide a tax identification number and if they do not, the platform may hold back some of the money getting transmitted. The $600 level to trigger a tax form would apply so the seller could see the amounts of payments due to them, the IRS said.

-Andrew Keshner

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.


(END) Dow Jones Newswires

11-25-23 1452ET

Copyright (c) 2023 Dow Jones & Company, Inc.

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