PayPal, eBay Gear Up for 1099-K Headaches While Chasing a Fix

E-commerce giants like eBay Inc. and Venmo are preparing to send a flood of additional forms to taxpayers while still holding out hope that lawmakers and the IRS will act fast to help avoid the inevitable resulting confusion.

Millions more people selling online will receive a tax form for their business transactions beginning in January, the first step toward implementing a 2021 law that drastically lowered the threshold for these companies to report to the IRS information about users receiving over $600 in revenue a year. The previous threshold was $20,000 and 200 transactions.

While the new threshold doesn’t change what anyone owes, it does change what companies report and which tax forms a casual seller receives. The e-commerce industry has warned that more taxpayers may over-report and be at greater risk for audits.

That threshold drop, which was set to be in place for the 2022 tax year, left taxpayers scrambling to collect the right information and companies lobbying lawmakers to get it changed. Two years later, the uncertainty remains.

“This is a huge issue for our user community and there’s been so much confusion over the past several years,” said Ashley Shillingsburg, head of eBay‘s federal government relations. “It’s great we’ve gotten delays but I think it has made everyone more confused.”

The IRS wanted to help. It twice delayed the start date for the new threshold and said in a press release a year ago that it would “plan” for a transition threshold at $5,000 for the 2025 tax filing season. Companies, though, want to hear more formally what the plan is for the next filing season.

“It needs to be an actual legally regular notice,” said Ryan Ellis, president of the Center for a Free Economy and a lobbyist for the 1099-K Coalition, a group of companies working to change the threshold. “We have to assume we’re in a $600 year, unless something changes.”

Legislative action would be a more permanent fix to avoid the chaos but chances for Congress to take up the cause this year are dimming.

“I’m not particularly optimistic about a lame-duck fix here,” said Dustin Stamper, a managing director at Grant Thornton. “Everyone should be preparing for that $5,000 threshold to be in place next year, and even if they got legislation, Democrats would be inclined not to go much lower than that anyway.”

Potential for Change

Democrats in the 2021 American Rescue Plan Act lowered the threshold to $600 for when e-commerce companies must send a 1099-K form to users and the IRS. The goal was to raise revenue and increase tax compliance, especially among gig workers.

The switch sparked concerns that unsuspecting taxpayers receiving the form for the first time would be unable to decipher which transactions are subject to the reporting requirement. Personal transactions aren’t subject to the reporting requirement.

Though the IRS decision to delay the $600 threshold was seen as a benefit to taxpayers, it drew fire from lawmakers and tax professionals who said it was outside the agency’s authority to ignore the law’s directive for enactment.

“The IRS has already pushed the bounds of their authority, and maybe as far as it will go,” Stamper said. “So as much as the IRS, or anyone else might not love the $600 threshold when it kicks in, I don’t know that they have any more authority to push it off further than that.”

There have been bipartisan efforts to raise the threshold again. A bill from Rep. Carol Miller (R-W.Va.) would take the threshold back to its original $20,000. Rep. Chris Pappas (D-N.H.) wants to raise the requirement to $5,000, and Sens. Sherrod Brown (D-Ohio) and Bill Cassidy (R-La.) proposed legislation to create a $10,000 threshold—the only bipartisan solution.

The 1099-K Coalition wants the threshold raised soon.

For Republicans, this “is going to be competing with everything else you have to do next year when you’re trying to write a tax bill, so get it done now,” Ellis said, adding for that he’s telling Democrats about how this was an unintended consequence of them trying to catch tax cheats.

“This is a 2024 issue,” Shillingsburg said.