Another IRS 1099-K Tax Change for Online Sellers

Millions of casual online sellers can breathe a sigh of relief since a confusing and concerning $600 IRS reporting rule won’t go into effect as planned for 2023. This is the second time the IRS has delayed implementing the 1099-K $600 tax reporting rule. 

That rule required payment apps and online marketplaces (think PayPal, Venmo, Etsy, eBay, StubHub, etc.) to send 1099-K forms to anyone who received over $600 in payments for goods or services (even in a single transaction). Early estimates were that more than 40 million taxpayers would have received forms. Some taxpayers wouldn’t expect one, including some sellers without a tax obligation. 

So, instead, for the 2023 tax year, a previous rule involving a much higher $20,000/200 transaction threshold applies. 

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Here’s what else you need to know.

IRS $600 rule delayed for online sales in 2023

In response to corporate concerns over the 1099-K threshold and to avoid further confusing taxpayers, the IRS has postponed implementing the new Form 1099-K reporting threshold requirement for third-party payment organizations. 

"We spent many months gathering feedback from third-party groups and others, and it became increasingly clear we need additional time to implement the new reporting requirements effectively," IRS Commissioner Danny Werfel said in a statement regarding the change.

Werfel added that a phased-in approach for the 1099-K threshold “is the right thing to do” and “prevents unnecessary confusion.” 

So, what does this mean for you if you sell (and receive payment for) goods and services online?

• The 1099-K reporting threshold, initially set at $600 for the 2023 tax year, is now delayed. 
• For 2023 (the federal income tax returns you’ll file in early 2024), a much higher $20,000/200 transaction 1099-K reporting threshold applies as it did for the 2022 tax year.
• The IRS plans to introduce a $5,000 threshold for the 2024 tax year for federal income tax returns usually filed in early 2025.

Note: It’s important to remember that these changes do not modify the tax law regarding income reporting. The IRS expects taxpayers to report all taxable income remains taxable regardless of whether a Form 1099-K is issued.

1099-K Form: Who will get one for 2023?

For the 2023 tax year, previous reporting thresholds remain intact. So, third-party payment apps and online marketplaces must issue 1099-K forms to individuals who, during 2023, received over $20,000 and have more than 200 transactions.

It's important to note that the 1099-K reporting requirement is for payments for goods or services. So, personal transactions like sharing the cost of a meal, ride, or giving a gift to celebrate a birthday or holiday, for example, shouldn’t be reported on a Form 1099-K.

However, the IRS says, “the casual sale of goods and services, including selling used personal items like clothing and furniture at a loss, could generate a Form 1099-K for many people, even if the seller has no tax liability from those sales.”

IRS 1099-K delay: What happens next?

The IRS will treat 2023 as a transition year. 

• For the 2024 tax year (returns normally filed in early 2025), the agency says it’s planning a $5,000 1099-K reporting threshold. 
• The $5,000 number is seen as a phase-in to implementing the $600 reporting threshold enacted in the American Rescue Plan. 
• The IRS will also change Form 1040 to make the 1099-K reporting process more straightforward. 

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

The agency says that the eventual change in the 1099-K reporting threshold can increase tax compliance, but the process must be managed carefully to ensure taxpayers know what to do with the forms.

If you are uncertain about your taxable income or whether you’ll receive a 1099-K, it’s wise to consult a qualified tax professional. You can also check out Kiplinger’s report on the 1099-K reporting requirements or visit the IRS website to learn more about the latest changes.

Related

• IRS 1099-K Tax Reporting: Everything You Need To Know
• What's the 2023 Standard Deduction?
• eBay, PayPal, Etsy, Ask Congress for 1099-K Relief
• IRS Audit Red Flags for the Self-Employed