The IRS gave gig workers a reprieve Tuesday, announcing they won’t have to worry about meeting tough new rules requiring them to file paperwork on low-dollar payments collected on apps like Venmo and PayPal when they file their 2023 taxes.
The delay, while likely welcome for taxpayers, is an embarrassing black eye for Democrats who stuck the stiffer reporting requirements in their 2021 pandemic stimulus package.
In an effort to get gig workers to pay their taxes, Democrats said anyone who collected more than $600 in income through an electronic payment app must get — and report to the IRS — a form detailing the money.
The goal was to get at people making money off selling services or goods online, but it was also likely to snare average Americans who used the apps to sell used furniture, reimburse a friend, or give a relative a gift of money.
The law was supposed to kick in last year but the IRS, bowing to intense pressure, belatedly declared 2022 a “transition” year. On Tuesday, the tax agency punted again, saying 2023 would be another “transition” year. So, for that matter, will 2024, when the reporting changes will take effect, but only for income more than $5,000.
“We spent many months gathering feedback from third-party groups and others, and it became increasingly clear we need additional time to effectively implement the new reporting requirements,” said IRS Commissioner Danny Werfel.
With the delay, the reporting requirement for tax year 2023 — meaning returns due in 2024 — will remain at $20,000 in payments across at least 200 transactions.
About 14 million taxpayers currently receive a Form 1099-K.
If the $600 threshold did go into effect, that number would rise to about 44 million, according to the Government Accountability Office, which predicted “confusion” among average taxpayers who would now have to figure out profits and losses from simple things like selling an old couch online.
“This puts them at risk of inaccurately reporting their incomes to the IRS or not meeting their tax obligations,” GAO said in an audit last week.
The audit also faulted the IRS, saying it lacked a plan for enforcement and outreach.
Republicans have mocked Democrats’ bungling, saying the whole idea of lowering the threshold to snare more Americans was ill-advised.
But Rep. Jason Smith, Missouri Republican and chairman of the Ways and Means Committee, also said the IRS’s move may not even be legal. He said the law Democrats wrote doesn’t seem to allow for the delays the IRS is attempting, and it needs a rewrite from Congress.
“Republicans have tried to repeal this terrible law, but Democrats have refused. Given that even Democrats now admit that this law is unworkable and are trying to rewrite a key provision, it’s time to scrap it and start over,” Mr. Smith said.
1099-K forms will start hitting taxpayers’ mailboxes in January.
Tuesday’s announcement at least gave taxpayers plenty of notice. Last year the IRS waited until Dec. 23, a Friday just before Christmas, and after some 1099-K forms were already sent out.
When Democrats passed the law in 2021, they were trying to target people who use online marketplaces to sell goods, such as Etsy or eBay, and who collect payment through transaction apps. Democrats figured people were able to earn thousands of dollars without facing pressure to report it.
The transaction apps, however, can’t automatically distinguish between a payment from a customer, a reimbursement from a friend or a gift from a relative.
The IRS said it’s up to those involved to label the transactions in the app to head off getting a 1099-K, and if they still get one it’s on them to go back and demand a “corrected” form.
Even trickier is a situation where someone is getting rid of something like used furniture on a site like eBay.
As long as the selling price is lower than the purchase, that’s not supposed to be taxable income, according to the IRS’s Advisory Council. But they could still receive a 1099-K and have to figure out how to handle that.
The Advisory Council, in a report earlier this month, said the IRS needs to do a lot more to help taxpayers sort out those issues.
The IRS said another year’s delay, and altering next year’s filing threshold to $5,000 instead of the eventual $600, should buy space to make improvements.
“We want to make this as easy as possible for taxpayers,” Mr Werfel said. “We will work to make the new reporting requirements easier for them, and we’ll work closely with third-party groups, tax professionals and others to find the smoothest path to ensure compliance with the law.”