Editor’s Note: Taxpayers who received 1099-K forms this year do not have to report payments of less than $600 for the 2022 tax year. They may have to report that tax information for the 2023 tax year. The headline on this story has been updated to reflect this.
(The Hill) – People are being told they need to provide their Social Security numbers to online platforms and cash transfer app companies for the sales of things like clothes and concert tickets over $600, even though the IRS says they don’t need to.
The prompts from companies like eBay and Ticketmaster are the result of a change in the tax law that was reneged last-minute by the IRS ahead of the 2023 tax filing season.
The switch is causing a lot of confusion among taxpayers and tax professionals — and even within the IRS itself.
The threshold for reporting business income or personal income from using these apps was supposed to change this year. It was downgraded from sales above $20,000 to sales of above just $600 and was part of a provision passed in the 2021 American Rescue Plan.
That means you’d need to pay a capital gains tax on sales worth more than $600 if you used these apps to receive a payment.
But the IRS decided to delay this rule change from tax season 2023 to tax season 2024, citing “confusion during the … 2023 tax filing season” and the need to “provide more time for taxpayers to prepare and understand the new reporting requirements.”
The IRS said some taxpayers may be receiving 1099-K forms “in error.”
“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 in a statement.
A spokesperson for the 1099-K Fairness Coalition, which represents a number of online payment platforms, wrote in an email to The Hill,” as it takes many months to get TINs [taxpayer identification numbers] and Social Security numbers from customers and then input into the system for the current tax year, it is reasonable for companies to begin asking for this information now.”
“The real problem is that the IRS has not provided much guidance to help the platform companies regarding when and what information they need to collect and report, and to taxpayers to understand what platform companies are required to report,” they added.
Are companies asking for your Social Security number after you sold something?
That confusion is proving to be a real frustration for some sellers and is leading companies to ask for sensitive information from their customers in an effort to be compliant with the law.
“Ebay prompted me to enter my Social [Security number] after I ‘sold’ over $600 in items last month. I’m assuming it’s for next year,” a person by the name of Allison Chao said Wednesday in an online forum discussing the changes in IRS rules.
“The word ‘sold’ is in quotes because the transactions were actually charged sales tax by Ebay which counted towards the $600 (I didn’t receive any of that tax personally),” Chao wrote. “Really upset me!”
That kind of confusion has been felt elsewhere, even as expectations for a smoother tax season have been bolstered by new funding for the IRS.
“Ticketmaster made me enter SS info after I resold a single concert for less than I paid for it,” a person identified as Stacey Silber Shea said in the same online forum.
Making things even more confusing, if taxpayers are selling personal items at a loss, they should be reporting those on one kind of form, and if they’re selling them at a gain, they should be reporting them on another.
Losses go on a 1099-K and gains go on a 1040, the IRS says.
Ebay confirmed to The Hill that it has “taken steps to comply with the new IRS 1099-K reporting requirements, including collecting social security numbers from customers when they pass the $600 threshold.”
Cash transfer companies say it’s on sellers to stay within tax laws
On top of that, as online sales companies pester customers in order to stay compliant, customers are being told by the IRS that it’s their job to sort things out with the companies if they feel they’re getting prompts in error.
This is a common problem in the case of cash transfer apps, which are termed “third-party settlement organizations” by the IRS, because it’s easy to confuse personal purchases and money transfers with sales that generate personal income, which is taxable under the law.
“Third-party settlement organizations and users repeatedly asked the IRS to provide useful guidance,” the National Taxpayer Advocate (NTA), which is an office within the IRS, said in a statement summarizing all the confusion for taxpayers last month.
“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,” it reads. “Given the anticipated volume of Forms 1099-K — which likely is in the tens of millions — that was not a realistic solution.”
These demands are adding to the already considerable stress of taxpayers who are simply trying to stay within the bounds of the law.
“Last year, Paypal stopped allowing personal payments on accounts that are marked as business so I started getting hit with those 3-percent fees, and I thought, you know, whatever,” Lev Epshtyn, a tech worker in New York, said in an interview.
“But then toward the end of the year, I realized they’re about to send me one of those forms, the 1099, for all that money that my friends were paying me for restaurant expenses and things like that,” he said.
“So I actually had to call them back and get them to declassify my account from business back to personal,” he said. “I was scrambling.”
Gig workers in particular are feeling the pressure from payment companies
Professional tax preparers say they can see the stress the rule-switching is causing in their customers.
“Online [sellers] and drivers” are the people most affected among the clientele of Umar Farooq, one of the IRS’s enrolled agents, who are tax preparers officially recognized by the IRS.
“Amazon sellers deal with this. And then the most affected are the Uber drivers, the Lyft drivers, because [they get paid through] the third party,” Farooq said.
“They were just confused and they didn’t know if they were going to be issued a 1099 or no,” he said.
Other professionals dealing with the issues have seen similar headaches.
“There was concern. Should people be getting a 1099 for the personal [sales]? That’s what most of the people are asking,” Abdul Hannan, a tax preparer in Brooklyn, told The Hill. “With Venmo and Cashapp, they don’t know if it’s business or if it’s personal, so people are confused.”
The IRS describes the reporting changes for next year as “hugely important” because they could affect tax compliance in a big way.
“However, the IRS noted it must be managed carefully to help ensure that 1099-Ks are only issued to taxpayers who should receive them,” the IRS said in a statement in January.
“In addition, it’s important that taxpayers understand what to do as a result of this reporting, and tax preparers and software providers have the information they need to assist taxpayers,” the statement reads.