The IRS is alerting Americans to a new tax refund scam designed to get their personal information. The letter, which has the agency’s masthead on it, requests driver’s license information, cell phone number, bank account details, and other valuable information to process the “refund.” The scam adds to an already full plate for the IRS, including 2.8 million unprocessed individual tax returns—and unless Congress acts to raise the threshold for goods and services sold online, that plate will be overflowing in 2024.
Americans across the nation—young and old—turn to online marketplaces to sell old items they no longer need. Others offer services such as dog walking, house sitting, or moving the lawn. Prior to the passage of the American Rescue Plan Act (ARPA), they only received an IRS 1099-K Form if two requirements were met: $20,000 annual threshold in sales and more than 200 transactions. The ARPA reduced the threshold significantly to $600 and eliminated the transaction requirement altogether.
As a result, millions of casual sellers will now be caught up in the 1099-K net for low dollar sales transactions, even in instances where there is no tax liability. For instance, no tax liability is incurred if a person sells an old painting or dresser for less than they paid for—in short, they aren’t making a profit off that painting or dresser. Sellers are bound to be confused when they get a tax form in the mail, and fearful of IRS repercussions, could overreport income. Others, unsure of what to do, could wind up paying hundreds of dollars to have a tax professional figure it out for them.
Sellers may also need to show proof no profit was made on the item they sold, which means tracking down receipts from years ago that they are unlikely to still have in their possession—a tough administrative burden for someone selling a dusty old dresser bought twenty years ago.
Millions of Americans rely on online marketplaces to supplement their income amid high gas and food prices. In fact, a Coalition for 1099-K Fairness national survey found that nearly 40% of sellers surveyed said the new reporting threshold poses an economic hardship and of those, 74% sell online to help pay for necessary expenses.
It’s not just sellers who will get hit hard by the new reporting threshold. The IRS is ill-prepared to handle an influx of new 1099-K Forms—as many as 20 million according to some tax professionals, but likely many more. Even IRS Commissioner Werfel alluded to the agency’s challenges in handling the excess forms, telling the House Ways and Means Committee that “a change in the threshold would be easier to administer and so at my seat of the table I’d say the IRS would have an easier time of administering it.”
Perhaps aware of its shortcomings and inability to handle the crush of tax forms and calls from online sellers, the IRS delayed the implementation of the new tax change for a year. While sellers breathed a sigh of relief, it was a temporary fix as opposed to a permanent solution for the problem at hand. For that, Congress must act before the end of the year.
Fortunately, lawmakers on both sides of the aisle in the House and Senate are aware of the ticking clock and have introduced multiple pieces of legislation–including a bipartisan bill–to either raise the threshold or return it to its original level. These bills present an incredible opportunity to eliminate a confusing burden for online sellers and spare an already-overwhelmed IRS. To quote Representative Pappas: “Congress must fix this now.”
