Beginning in 2023, the reporting threshold for businesses that use third-party apps, such as Venmo, Etsy, StubHub and Airbnb, was set to decrease significantly, from $20,000 to $600.
Now, the Internal Revenue Service has delayed the decreased reporting threshold for another year and announced that it will begin to phase in the lowered threshold starting in 2024, starting at $5,000 for the 2024 tax year. 2023, then, will simply be treated as another transition year.
The American Rescue Plan Act of 2021 also removed the de minimis threshold, which previously allowed an exception to filing Form 1099-K. In prior years, Form 1099-K was required to be issued for third-party networks transactions only if the number of transactions exceeded 200 for the year and the aggregate amount of these transactions exceeded $20,000.
We asked two professors and authors of ALM's Tax Facts with opposing political viewpoints to share their opinions about the most recent delay in the effective date for the reduced Form 1099-K threshold.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Bloink
Byrnes
Their Reasons:
Bloink: This newly reduced threshold is going to create widespread confusion for ordinary taxpayers. Using online money transfer services has become extremely common. The law will require complex calculations to properly report gain or loss — and will apply to many taxpayers who've never been subject to these types of reporting requirements. We need the extra time to create a system that avoids confusion and widespread misinterpretation.
Byrnes: There's no reason that the IRS shouldn't have this new threshold well in place by now. The infusion of an additional $80 billion in revenue was made to the IRS to avoid delays like this. In the past, when the IRS didn't have the resources to act as efficiently and effectively as a modern agency should have, delays like this were common.
Bloink: Taxpayers don't yet have the clear guidance to determine which transactions are going to require Forms 1099-K and which will not. The IRS has been clear that it continues to solicit and evaluate feedback from tax professionals and third-party groups as it seeks to establish clear procedures to minimize the administrative burden for all parties who are impacted by these significant changes in reporting obligations.
Byrnes: The IRS has already taken steps to provide guidance and clarity to taxpayers by updating the FAQ on the new 1099-K reporting requirements. That guidance provides significant flexibility for taxpayers by allowing them to report information from 1099-Ks separately or combine multiple 1099-Ks. If the IRS is continuing to cite administrative burden as a rationale for delaying rules like this, we should all be questioning whether their influx of funding is being put to use effectively.
Bloink: The fact is that we're faced with a confusing new system that is very likely to create a significant burden for both taxpayers and the IRS. Many taxpayers are encountering these rules and requirements for the first time. It makes perfect sense that we should step back and take the time to implement the system the right way to avoid bigger problems down the line.
Byrnes: The new rules were put into place for a reason, and it's the IRS' job to use their resources to implement them swiftly and effectively. Claiming that additional delays are necessary to avoid taxpayer confusion seems a bit like a cop-out at this point. Sure, reducing the threshold gradually can reduce the increased workload for the IRS — but it also creates additional confusion for taxpayers who now must deal with yet another set of changes due to the phase-in.
Learn more with Tax Facts, the go-to resource that answers critical tax questions with the latest tax developments. Online subscribers get access to exclusive e-newsletters.
Discover more resources on finance and taxes on the NU Resource Center.
Follow Tax Facts on LinkedIn and join the conversation on financial planning and targeted tax topics.
Get 10% off any Tax Facts product just for being a ThinkAdvisor reader! Complete the free trial form or call 859-692-2205 to learn more or get started today.
Bloink 
Byrnes 
