The Internal Revenue Service (IRS) has announced a delay in implementing new reporting requirements for users of payment apps such as Venmo, Cash App, and others. Originally, app users who made $600 or more selling goods and services would have been required to report those transactions to the IRS, as mandated by the American Rescue Plan passed in March 2021. However, the IRS has now decided that payment apps and online marketplaces will instead send out separate tax forms, known as 1099-K documents, for taxpayers who receive over $20,000 and make over 200 transactions selling goods or services.
This delay is attributed to taxpayer confusion regarding which transactions are reportable. The IRS wants to ensure that individuals are clear on what transactions need to be reported. Peer-to-peer transactions, such as selling a couch or car, sending rent to a roommate, and buying concert tickets, would not be reportable, while other purchases would be subject to reporting. IRS Commissioner Danny Werfel stated that taking a phased-in approach would prevent unnecessary confusion for taxpayers, tax professionals, and others involved in this area.
This new reporting requirement had already been delayed last year due to feedback from third-party groups and others, which highlighted the need for additional time to effectively implement the new regulations. The provision in the American Rescue Plan initially required users to report transactions through payment apps when goods and services reached or exceeded $600 in a calendar year. However, this reporting requirement had only applied to those who received over $20,000 and had over 200 transactions.
The IRS's decision to delay the implementation of the 2021 law for another year aims to reduce taxpayer confusion further. Without this delay, the IRS estimated that around 44 million 1099-K forms would have been sent to taxpayers for the current tax year, even if they did not owe taxes on the payments and were not expecting such forms. By postponing the regulation, the IRS hopes to avoid unnecessary paperwork for taxpayers.
Moreover, starting in the 2024 tax year, the IRS plans to raise the basic reporting threshold from $600 to $5,000 as part of the phased implementation of the new rule. This adjustment aims to address concerns raised by online selling platforms such as eBay and Etsy, which argued that the reporting requirement would create confusion and difficulties for sellers who rely on these platforms as their source of income. Republican lawmakers also criticized the plan, calling it government overreach and warning that it could negatively impact individuals who use payment apps for personal reimbursements.
The decision to delay the implementation of the new reporting requirements has been met with mixed reactions. Supporters argue that it allows for more clarity and avoids burdening taxpayers with unnecessary reporting. However, critics contend that it potentially leaves room for tax evasion and could complicate the reporting process for small businesses and individuals who rely on payment apps for their financial transactions. The IRS will continue to monitor the situation and work towards a smooth implementation of the new regulations.
