The Internal Revenue Service (IRS) announced it will move forward with the new Form 1099-K beginning January 1, 2024. The American Rescue Plan Act (ARPA), which was signed into law in August 2022, lowered the threshold for 1099-K reporting from $20,000 and 200 transactions to $600 for any transaction. The changes were supposed to go into effect for the 2022 tax year but were postponed. The IRS decided not to enforce the $20,000 threshold and instead will require reporting of $5,000 worth of transactions for the 2024 tax year.
House Committee on Ways and Means Chairman Jason Smith (R-Mo.) criticized the delay saying, “This flawed policy targets working-class Americans, and the Biden administration knows steaming forward during an election year would be a disaster. By delaying implementation of this arbitrary and harmful new reporting threshold that goes after Americans for selling concert tickets and used furniture, President Biden is dodging accountability for Democrats’ partisan law that places over 90 percent of the tax burden on middle-class families and gig workers, according to the Joint Committee on Taxation. It’s unlikely this move is even constitutional given the clear text of the legislation Democrats enacted, when it’s up to Congress, not the White House, to amend or repeal bad laws. Republicans have tried to repeal this terrible law, but Democrats have refused. Given that even Democrats now admit that this law is unworkable and are trying to rewrite a key provision, it’s time to scrap it and start over.”
H.R. 3937, the Tax Cuts for Working Families Act, which was introduced by Chairman Smith and passed by the Ways and Means Committee, would restore the previous reporting requirement of $20,000 and more than 200 transactions. The legislation did not receive any support from Democrats.
The lower threshold will still result in millions of taxpayers receiving a Form 1099-K in 2024, even if the transactions are not taxable income. For example, transactions like splitting a restaurant bill or paying a friend back for concert tickets or paying rent via third party payment platforms like Venmo and PayPal, which are reimbursements and not taxable income, would not be subject to the new reporting threshold. The sale of goods like used clothing, furniture, and other household items, even at a loss, could result in a 1099-K, even if they are sold at a loss and there is no tax liability. Currently, the 1099-K is the least used and filed information return of the 14 most-filed returns. The ARPA threshold will increase the total of 1099-K forms filed to 44 million Forms, which is approximately 30 million more forms than under the previous threshold.
This influx of paperwork will inevitably lead to confusion for taxpayers and even greater processing delays at the IRS, which already suffers from significant information technology and mismanagement issues and is still trying to waste billions of dollars by entering the tax preparation business. According to a November 15, 2023, Government Accountability Office (GAO) report, taxpayers, especially gig workers, may have trouble understanding which transactions are taxable and which are not taxable. The IRS itself said in its announcement of pushing back enforcement that “the complexity in distinguishing between these types of transactions factored into the IRS decision to delay the reporting requirements an additional year and to plan for a threshold of $5,000 for 2024 in order to phase in implementation.”
The new 1099-K threshold is just as problematic as the original ARPA threshold. Congress should pass H.R. 3937 or another bill that would restore the previous threshold of $20,000 and more than 600 transactions. That would save taxpayers from unnecessary paperwork, greater confusion, and the potential of more audits for transactions that previously did not need to be reported.
The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.