Advocates in Congress are pushing to have the recently changed threshold for filing a 1099-K reverted. Recently in the American Rescue Plan Act, the threshold was changed for reporting transactions from payment cards and third-party networks to $600 from the previous $20,000 figure. This comes as there is still a heavy government focus on the IRS’ phone lines being overwhelmed.
Legislation Challenge & Reasoning Behind it
There are hopes that lawmakers will suspend the change in threshold following mid-term elections as part of an end-of-year tax extenders package, or at least implement some change through this. This was brought to the attention of Congress through an open letter written to congressional leaders from 70 mostly conservative and free market organizations, including the National Taxpayers Union, Americans for Tax Reform, the Center for a Free Economy, and the American Business Defense Council.
In the open letter, it states, “Under the prior law, a 1099-K was issued only in the event that a business charged customers at least 200 times in a year, and $20,000 in the aggregate,” and continued to speak about the new legislation, “H.R. 1319 eliminated the 200 transaction threshold entirely, and lowered the dollar hurdle to just $600. As a result, both very small business ventures and unwitting non-business taxpayers have found themselves caught in the 1099-K reporting net. Millions of Americans who have never received a 1099-K form before, and don’t know what to do with it, will get one. If they seek help from the IRS, they will quickly run into an overwhelmed agency trying to process this gusher of new 1099-K returns, keep up with filing season, clear out prior backlogs, respond to correspondence, and even answer the 800-number telephone line.”
Furthering the Point
Additional concern was raised for young individuals who may have never seen tax information as they will suddenly become recipients of the 1099-K forms. These individuals can include teenage babysitters & landscapers, college students tutoring or college athletes training younger students, rideshare drivers, and many, many more.
To further the point, the open letter stated how this will affect the IRS, “Taxpayers receiving a 1099-K may not know what to do with it, and may be apt to ignore it on their tax return. Doing so will result in the IRS assessing tax on the full amount found on the 1099-K, even if the taxpayer has basis or business expenses that would reduce or eliminate the ultimate amount of tax owed.”
Wrap Up
It is currently unclear how this will play out in the next held Congressional session. Many also believe Congress will be more amenable only after worried taxpayers bring this to the attention of the IRS. We will be monitoring the situation and keeping you apprised as it unfolds!