IRS' Venmo crackdown delayed but not dead this holiday season
The IRS has delayed a regulatory rule that would have required tax reporting on online transactions totaling $600 or more. However, the issue is not completely resolved.
Lowered Reporting Threshold
In 2021, congressional Democrats lowered the reporting threshold for online transactions to $600 or more. This would have resulted in millions of Americans receiving 1099-K forms and having to report that income to the IRS.
The threshold of $600 is unreasonably low and would capture transactions that typically would not be reported or create any tax liability. Everyday activities like selling used items, splitting bills with friends, or consigning old clothes could easily surpass this limit.
The IRS predicted that the number of 1099-K forms would jump from 28 million to 44 million this year.
Impact on Women and Middle/Low-Income Households
The new reporting rule would disproportionately impact women and middle- to low-income households. Many casual online resellers, including stay-at-home moms, earn small amounts of income on the side through platforms like eBay, Etsy, and Facebook Marketplace.
Communities of color would also be disproportionately affected by this reporting requirement.
Lowering the reporting threshold to $600 would dry up income-generating avenues for these individuals.
Paperwork Nightmare and Tax Complexity
The lowered reporting threshold would have created a paperwork nightmare for tax preparers and accountants. Tax filers with relatively simple tax situations would suddenly face more complexity and could make costly mistakes.
The Congressional Research Service predicted that the new reporting requirement would cause errors and problems, leading to delayed tax returns. The IRS was not prepared for the implementation of this rule and has delayed it for one year.
Congress needs to address this burdensome rule in order to prevent households from being buried in paperwork and tax woes.
