J. David Ake/AP
The IRS is once again delaying the implementation of a rule change that would require small businesses, gig workers and those with side hustles to issue more 1099-Ks.
It’s the second year The IRS decided to delay its application a rule change that will affect Taxpayers who earn business income for their goods and services through payment apps and online marketplaces such as Venmo, CashApp, Etsy, and Airbnb.
The change could have resulted in 44 million more 1099-K forms being sent in January to such filers, including small business owners, freelancers, side hustlers and gig workers.
In explaining why implementation was being delayed again, the IRS cited concerns about potential taxpayer confusion and the need to make it easier for all parties to comply with the change.
“We have spent months gathering input from third-party groups and others, and it has become increasingly clear that we need additional time to effectively implement the new reporting requirements,” said IRS Commissioner Danny Werfel. “We want to make it as easy as possible for taxpayers. We will work to make the new reporting requirements easier for them and work closely with third-party groups, tax professionals and others to find the easiest way to ensure compliance.”
For this tax year, the reporting rule that has been in place for years is still in place.
Third-party payment platforms — also known as third-party settlement organizations — must report your gross business income to you and the IRS in January only if you made more than 200 business transactions on that platform and earned more than the gross income. $20,000 of them.
A business transaction is defined as payment for goods or services, including tips. This does not include personal transactions, such as a friend paying you for a lunch share. Or you send your child to cover expenses for money.
(If you’re receiving an incorrect 1099-K, either because your business transactions did not exceed this year’s limits or the form reflects cash transactions that are personal, check this IRS page for how to correct the situation.)
A rule change that went into effect as part of the 2021 American Rescue Plan will require third-party platforms to issue you a 1099-K if you earn more than $600 in annual business income from one or more business transactions.
But the IRS said Tuesday that instead of implementing the $600 threshold for the 2024 tax year, it will “phase in” the change and only require third-party platforms to issue you a 1099-K if your business transactions exceed $5,000.
“This phased approach will allow the agency to review its operational processes to better address taxpayer and stakeholder concerns,” the IRS said.
The 1099-K Tax Fairness Coalition, whose members include the Electronic Transactions Association, Airbnb, PayPal, Eventbrite, Etsy, Poshmark and others, said the delay would give members of Congress time to come up with a “permanent, bipartisan fix.” to the rule. Lawmakers on both sides of the aisle, including Democratic Sen. Sherrod Brown of Ohio and Republican Sen. Bill Cassidy of Louisiana, have pushed for a higher income threshold.
“The Biden Administration’s decision represents a victory for common-sense tax policy by ensuring that consumers don’t face a tsunami of 1099-Ks in January,” said Arshi Siddiqui, a partner at Akin Gump who led the Coalition’s lobbying efforts.
Regardless of the delay or rule change, your tax obligations remain the same
Neither the delay in the rule change nor its eventual implementation will change your tax burden in any way.
This is because you, as a taxpayer, have always had to report your business earnings to the IRS.
The difference after the rule change takes effect is that the IRS will learn your business income from a third-party payment platform. So this will make it harder for someone to avoid paying the taxes they owe if they’re tempted to not report what they’re doing.
The change will effectively pull back the curtain on how much business revenue is generated on third-party payment platforms.