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 this tax information for the 2023 tax year. The headline of this story has been updated to reflect this.
(A hill) – People are being told they must provide their Social Security numbers to online platforms and money transfer companies to sell things like clothing and concert tickets worth more than $600, even though the IRS says they it is not necessary.
The tips from companies like eBay and Ticketmaster come as a result of tax law changes that were reversed at the last minute by the IRS the day before 2023 tax filing season.
The switch is causing a lot of confusion among taxpayers and tax professionals — and even the IRS itself.
The threshold for reporting business income or personal income from using these programs was set to change this year. It was lowered from sales over $20,000 to over $600 and was part of a provision passed in the 2021 Save America Plan.
This means you will have to pay capital gains tax on sales over $600 if you used these programs to get paid.
But the IRS decided to delay this rule change from the 2023 tax season to the 2024 tax season, citing “confusion during the … 2023 tax filing season” and the need to “give taxpayers more time to prepare and understand the new reporting requirements.”
The IRS said some taxpayers may be receiving 1099-K forms “in error.”
“Some people may receive a Form 1099-K for sales of personal items or in situations where they received a Form 1099-K in error (such as for transactions between friends and family or expense allocations),” 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, “because it takes many months to get a TIN. [taxpayer identification numbers] and Social Security numbers from customers and then enter into the system for the current tax year, it’s smart for companies to start requesting this information now.”
“The real problem is that the IRS doesn’t provide much guidance to help platform companies with when and what information they need to collect and report, and for taxpayers to understand what platform companies are required to report,” they added .
Are companies asking for your social security number after you sell something?
This confusion is causing real frustration for some sellers and forcing companies to request sensitive information from their customers in an effort to comply with the law.
“Ebay prompted me to log in to my Social [Security number] after I “sold” over $600 worth of items last month. I guess it’s for next year,” Alison Chao said Wednesday in an online forum discussing the IRS rule changes.
“The word ‘sold’ is in quotes because Ebay actually collected $600 in sales tax from the transactions (I personally did not receive this tax),” Chao wrote. “Really upset me!”
Such confusion has been felt elsewhere, even as hopes for a smoother tax season roll out bolstered by new funding for the IRS.
“Ticketmaster forced me to enter SS information after I resold one concert for less than I paid for it,” said a person identified as Stacey Silber Shea on the same forum.
It’s even more confusing: if taxpayers sell personal items at a loss, they must report them on one form, and if they sell at a profit, on another.
Losses go on the 1099-K and gains go on the 1040, according to the IRS.
Ebay confirmed to The Hill that it “has taken steps to comply with new IRS 1099-K reporting requirements, including collecting Social Security numbers from customers when they pass the $600 threshold.”
Money transfer companies argue that sellers must comply with tax laws
On top of that, as online sales companies harass customers into not complying, the IRS is telling customers that it’s their job to deal with the companies if they feel they’re being tipped wrong.
This is a common problem with money transfer apps, which the IRS calls “third-party settlement entities,” because it’s easy to confuse personal purchases and money transfers with sales that generate legally taxable personal income. .
“Third-party settlement organizations and users have repeatedly asked the IRS for helpful guidance,” the National Taxpayer Advocate (NTA), an office of the IRS, said in a statement summarizing the confusion for taxpayers last month.
“And the IRS’s response was to tell taxpayers that if the Form 1099-K was in error, they needed to go back to the third-party vendor and convince the vendor to issue a corrected Form 1099-K,” the report said. “Given the expected volume of 1099-K forms — which are likely to be in the tens of millions — this was not a realistic solution.”
These requirements add considerable stress to taxpayers who are simply trying to stay within the law.
“Last year, Paypal stopped allowing personal payments on accounts marked as business, so I started getting these 3 percent fees, and I thought, you know, whatever,” said Lev Epstein, a tech worker in New York. an interview.
“But then at the end of the year I realized they were going to send me one of these forms, a 1099, for all the money my friends were paying me for restaurant expenses and stuff like that,” he said.
“So I had to call them back and get them to declassify my account from business to personal,” he said. “I was scrambling.”
In particular, concert employees feel pressure from payment companies
Professional tax preparers say they are seeing the stress the rule change is causing their clients.
“On the Internet [sellers] and drivers” were the hardest hit among the clients of Umar Farooq, one of the IRS agents who are tax preparers officially recognized by the IRS.
“Amazon sellers are doing it. And the worst hit are the Uber drivers, the Lyft drivers, because [they get paid through] a third party,” Farooq said.
“They were just confused and didn’t know if they were going to get a 1099 or not,” he said.
Other problem-solving professionals have seen similar headaches.
“There was concern. Should people get a 1099 for personal [sales]? That’s what most people are asking about,” Abdul Hannan, a tax preparer in Brooklyn, told The Hill. “With Venmo and Cashapp, they don’t know if it’s business or personal, so people get confused.”
The IRS describes the changes to next year’s reporting as “very important” because they can have a significant impact on tax compliance.
“However, the IRS has noted that they must be carefully managed to ensure that 1099-Ks are issued only to taxpayers who should receive them,” the IRS said in a statement in January.
“In addition, it is important that taxpayers understand what to do as a result of this reporting and that tax preparers and software providers have the information they need to assist taxpayers,” the statement said.