Some American taxpayers are reportedly receiving 1099-K tax forms from the Internal Revenue Service (IRS) even though they may not be legally obligated to file it, which comes amid the tax agency flip-flopping on the income threshold applicable regarding the form.
The form 1099-K is a document sent by third-party networks like PayPal, Venmo, Amazon, and Square when a user’s gross sales exceed a set threshold. Until last year, that threshold used to be $20,000. But the American Rescue Plan of 2021 reduced the threshold to $600, which was supposed to come into effect during tax year 2022. The IRS postponed the new rule by one year, with the new threshold only getting active beginning tax year 2023.
First reported by Fox News, some taxpayers below the IRS threshold have begun receiving form 1099-K despite the postponement.
According to the IRS, even though the reduced reporting requirement for 1099-K was delayed, individuals who had not received the form in the past may still receive one this year.
“Some individuals may receive a Form 1099-K for the sale of personal items or in situations where they received a Form 1099-K in error (i.e., for transactions between friends and family, or expense sharing),” the agency said on its website.
“I predicted such an occurrence in interviews I gave after the IRS provided the one-year delay on December 23, 2022,” Tom O’Saben, the National Association of Tax Professionals director of Tax Content and Government Relations, said to Fox.
“In my opinion, third-party settlement agencies likely had the infrastructure in place to comply with the reduced threshold rules and decided to follow those guidelines as general business practice immediately rather than wait until next year.”
The decision to lower the income threshold from $20,000 to $600 was widely criticized. The American Institute of Certified Public Accountants (AICPA), for example, shared a letter to Congress expressing “deep concerns” about the reduction. The AICPA suggested setting the threshold at a level “sufficient to exempt casual or low-level online activity.”
In a post on Feb. 9, the Taxpayer Advocate Service, an independent organization within the IRS that aims to help taxpayers resolve problems, criticized the agency for how it has handled the implementation of the new threshold.
“Third-party settlement organizations and users repeatedly asked the IRS to provide useful guidance, and the IRS’s response was largely to tell taxpayers that if a Form 1099-K is erroneous, they needed to go back to the third-party provider and convince the provider to issue a corrected Form 1099-K,” the post said.
“Given the anticipated volume of forms 1099-K—which likely is in the tens of millions—that was not a realistic solution. Had the IRS provided guidance on how to back out personal payments earlier, the reporting requirement probably could have been timely implemented.”
Some platforms have admitted that the new 1099-K threshold policies have created issues. “For tax year 2022, we made a change to how we classify certain transactions on your 1099-K form in line with our interpretation of IRS guidelines,” Stripe, a payment-processing platform, said in a post.
“We now realize that this approach might have caused unnecessary confusion.” Stripe generated a new 1099-K form to reverse the change it had made to the methodology and made it available to users.
Tougher state rules may also be a reason why some taxpayers are unnecessarily receiving 1099-K forms, Andy Phillips, director of the Tax Institute at H&R Block, told Fox.
“In addition, some platforms may still voluntarily issue a Form 1099-K to taxpayers even if they do not meet the higher threshold. Lastly, a form 1099-K would be issued if the platform withheld any income tax during the year,” he said.