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As Congress wraps up 2022 A sprint to pass laws and a spending dealTax accountants are joining a chorus of e-commerce companies and payments platforms that say a revised tax form is going to create serious confusion unless legislators make quick changes.
Without the higher money threshold to trigger the form, there could be “significant confusion in the tax system over the next several months” and a chance to eliminate the IRS backlog “that still haunts the tax system,” says the American Institute of CPAs. said in a letter Friday.
The backstory exceeds the new reporting threshold for the tax document known as Form 1099-K.
Payment Platforms Including eBay
and others sent the form to both the payee and the IRS after the first payee had received it. At least $20,000 in gross payments And had done more than 200 transactions.
The US rescue plan for 2021 lowered the reporting threshold, saying platforms had to issue the form once gross payments exceeded $600. MPs determined that it took only one transaction to trigger the form.
Companies that come together in a group are called 1099-K Coalition for Fairness, Says the lower reporting threshold will lead to administrative hassle for businesses and misunderstanding for millions of taxpayers.
For example, he says, the form could give someone selling personal goods on eBay the impression they had a reportable capital gain. But they will need to obtain the initial purchase price of the items themselves — and if the person is selling the personal property at a loss, the IRS says there is no need to report the non-deductible loss.
Read also: Dear Tax Man: ‘I’ve accumulated a lot of junk.’ I plan to make $6,000 selling stuff on eBay. Can I put it into an IRA instead of paying income tax?
Another issue is sorting out reimbursements to friends and family that are channeled through these platforms versus business transactions.
The law that lowered the reporting threshold mandated that 1099-K reporting pertain only to payments for goods and services. Still, the AICPA’s letter said it had “significant concerns” about forms sent in error to people who weren’t selling anything.
The AICPA letter said that if the IRS tries to match 1099-K forms, it also questions what taxpayers were reporting on their income taxes. It has the potential to “disastrously add to confusion and processing backlogs” as taxpayers try to resolve their tax situations through correspondence, it said.
In early December, the IRS had 3.1 million unprocessed tax returns, Which includes 1.5 million paper returns. The IRS did not immediately respond to a request for comment.
One question is where the reporting threshold should apply if $600 is too low. The AICPA did not support the specific legislation, but said it supports an idea of setting a cap of $5,000.
Several bills aim to raise the reporting threshold and some would revert to the old rules entirely while others are at levels between $600 and $20,000. ,Cut Red Tape for Online Selling Act,” would put the cap at $5,000. It was introduced in the Senate by Maggie Hassan, a Democrat from New Hampshire. Hassan’s office did not immediately respond to a request for comment.
President Joe Biden signed on Friday A stopgap one-week government funding bill. It avoids a government shutdown while negotiations continue on a large omnibus spending bill.
New tax rule affecting eBay, Venmo and Etsy could be ‘significant’
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