As we round out the 2022 tax filing season, analysts are reporting a smooth reporting season – with Internal Revenue correspondence happening faster, no glitches in e-file, and no major delays. In fact, we have arguably had the best filing season since the Spring of 2019, before the onslaught of the COVID-19 pandemic.
Next year’s filing season, however, is poised to look drastically different to this one.
On top of what is an already rigorous filing process, Americans will have one more tedious form to deal with should they be one of the millions of people in the country that resell goods online. This is because changes in online tax reporting thresholds, included in the American Rescue Plan Act of 2021, require anyone who sells over $600 in goods online to file a 1099-K, regardless of whether they make a profit or not.
While the IRS delayed the implementation of the new reporting threshold this year – in part, “to reduce confusion and to provide more time for taxpayers to prepare,” according to then-acting IRS Commissioner Doug O’Donnell – next year it will drop drastically from the previous $20,000 threshold.
The IRS even dedicated an entire webpage to answering the litany of questions from concerned sellers on how exactly the filing of these 1099-K's will work – an ominous sign that there is rampant confusion over the new threshold.
The impact event will be when online platforms such as eBay, Etsy, PayPal and Stubhub – by law – start sending out millions of 1099-K forms to anyone selling goods or services over $600. It adds yet another burden onto the shoulders of taxpayers, many of whom are struggling to adapt to an inflation-saturated economy and a volatile job market.
The lower tax threshold sweeps up everyone selling items online, from college students selling used textbooks and parents who resell used toys to adults who sell old clothes and concert tickets, and retired couples unloading furniture when downsizing.
And the new reporting threshold will not just create additional paperwork, it will also place a financial burden on many working families. A recent Coalition for 1099-K Fairness survey of small online sellers found 74 percent of respondents say they sell online to pay for necessary personal expenses, and nearly 40 percent say the tax change report will create an economic hardship. Eighty-five percent of casual sellers do not think the IRS should be targeting individuals who only occasionally sell online.
This 1099-K asteroid will increase confusion and frustration, and it will come with cost increases for those who need to seek the guidance of tax experts— another financial blow during these uncertain economic times. Once the impact event takes place and tens of millions of these forms go out to unsuspecting Americans, there is no turning back.
Congress is now grappling with the issue – over the past two years, half a dozen bills have been introduced to increase the threshold to different levels by both Democrats and Republicans, but a bipartisan compromise has remained elusive.
As economic uncertainty continues, Congress has to come together and prioritize finding a solution to this burdensome tax issue before it impacts Americans across the country.
