For the second time in a year, the Internal Revenue Service is delaying enforcement of a controversial tax policy that would require users of digital wallets and e-commerce platforms to begin reporting small transactions to the debt collection agency. taxes.
The IRS announced Tuesday that it would gradually implement the new policy, which would require individuals and small businesses to report digital transactions as small as $600 to the federal government.
The new reporting requirement was supposed to take effect late last year, but the Biden administration abruptly postponed it following pressure from lobbyists and backlash from users of services such as Venmo, PayPal, Cash App, StubHub and Etsy.
The head of the Internal Revenue Service said the decision to again delay enforcement of the rule stemmed from fears of a higher tax bill among those who used digital wallets.
“We have spent many months gathering feedback from third-party groups and others, and it has become increasingly clear that we need more time to effectively implement the new reporting requirements,” IRS Commissioner Daniel Werfel said in a statement.
The rule, which was included in the 2021 American Rescue Plan, was intended to help close a $7 trillion “tax gap” owed to the United States but which has not been collected. Before the new law, services like Venmo were only required to provide users with a snapshot of their income, called a 1099-K form, if they received more than $20,000 and made more than 200 transactions per year. The forms were supposed to be submitted to the IRS with tax returns and were intended to help determine how much a taxpayer owed.
The 2021 law lowered that threshold to $600 for the entire year, regardless of the number of transactions, significantly increasing the number of people who may have to report more income and pay more taxes.
In its Tuesday announcement, the IRS said it would keep the old policy in place for the current tax year. And in 2024, he plans to require only taxpayers with more than $5,000 in business transactions to report that income.
IRS officials said the commissioner has discretion to administer the tax law and the authority to delay its enforcement.
The law change is expected to generate about $8 billion in additional tax revenue over 10 years. IRS officials did not have an estimate of how much tax revenue might not be collected because of the delay.
Democrats and Republicans in Congress worked last year on new legislation that would reduce reporting requirements to make them less onerous for small businesses.
“This red tape is hurting small businesses and other Ohioans who sell products online, wasting time and resources for smaller online sellers,” said Sen. Sherrod Brown, Democrat of Ohio, in May when he introduced bipartisan legislation to increase the reporting requirement to $10,000. “By raising the threshold, we can prevent the IRS from interfering with minor transactions and reduce excessive paperwork.”
Many taxpayers who run small businesses, or occasionally sell goods on the side, fear they could face complicated fights with the IRS if their tax returns mistakenly show they earned more income than they took in. actually won. In some cases, people who sold used items might have to pay high taxes for those sales if they were unable to find receipts showing the depreciation in value of those items.
Advocacy groups have urged the Biden administration to again delay enacting the policy so Congress has time to act before more than 40 million tax forms are sent to taxpayers. They argued that widespread confusion persists about whether taxpayers will end up having to pay taxes on small digital transactions between family members and friends.
“The IRS decision represents a huge victory for millions of consumers who were allegedly hit by a 1,099K freight train in January and also gives Congress more time to develop a permanent legislative solution on a bipartisan basis” , said Arshi Siddiqui, a partner at Akin Gump, who is leading efforts by a coalition of businesses trying to change the new tax requirements.
