A new report from the National Taxpayers Union Foundation (NTUF) explores the excessive burdens imposed on taxpayers by changes to 1099-K reporting requirements and steps that can be taken to resolve the issue.
The 1099-K form is used to report payments for goods or services to the IRS. Before the American Rescue Plan Act of 2021 (ARPA), the reporting requirement was triggered when a person had at least 200 transactions and a gross dollar amount of $20,000.
ARPA drastically lowered the threshold to $600 per year, with no minimum number of transactions. When the threshold is met, the third-party platform must issue a 1099-K form reporting gross receipts to the taxpayer, as well as a copy to the IRS. Millions of gig economy workers and small online sellers could be hit with a flood of paperwork and potential tax confusion because of the change.
Although ARPA’s new threshold was supposed to take effect in 2022, the IRS suspended its implementation in 2022 and again in 2023. Then, in 2024, the IRS announced that it would enforce a $5,000 reporting threshold for next year’s tax filing season rather than the statutory level of $600.
While there are practical reasons why the IRS postponed implementing ARPA’s 1099-K changes and then announced a plan to phase them in with an alternative threshold, there are constitutional concerns about these decisions. While the IRS may have flexibility in implementation timelines, it does not have the authority to unilaterally adjust statutory thresholds set by Congress. Changes to tax law and reporting requirements should come through legislative action, not administrative fiat.
In the report, Vice President of Research for NTUF Demian Brady writes:
With members of both parties acknowledging the administrative burdens imposed on the IRS and taxpayers alike, there is a clear opportunity for Congress to work together to address this issue before it causes unnecessary confusion and strain. Ensuring clarity and fairness in 1099-K reporting would free up IRS resources for improving taxpayers services in other areas, a win-win for taxpayers.
The House Ways and Means Committee, under the leadership of Chairman Jason Smith (R-MO), worked to correct this debacle by passing Rep. Miller’s Saving Gig Economy Taxpayers Act. The bill would restore the $20,000/200 transaction threshold for reporting 1099-K forms.
If you’d like to discuss 1099-K reporting requirements and possible solutions with Vice President of Research for NTUF Demian Brady, please contact NTUF Marketing Director Courtney Manley at courtney.manley@ntu.org.