The American Rescue Plan Act (ARPA) included dozens of tax provisions that were intended to increase revenue, including lowering the threshold for reporting payments made through payments cards and third-party networks on Form 1099-K.  The legislation lowered the amount that must be reported to any single transaction of $600 from the prior requirement of 200 transactions or $20,000 annually.  The provisions immediately raised objections from members of Congress to sellers of everything from their old couch to an exercise bike to payments between friends on Venmo, PayPal, and CashApp.  The complexity of the new requirements, along with pressure from taxpayers and members of Congress, led the Internal Revenue Service (IRS) to postpone their implementation until January 1, 2024. 

One of the problems with the new law was described by Evercore Wealth Management of San Francisco National Director of Wealth Planning Justin Miller, who stated, the “challenge with the new lower threshold amount of $600 for Form 1099-K is that personal payments and reimbursements could be incorrectly reported as taxable transactions.”  For example, sending birthday money to a child or reimbursement for a date-night excursion could potentially lead to double taxation without proper documentation.  It could also lead to someone receiving a 1099-NEC or a 1099-MISC for the same business or personal transaction that would have to be reported on a 1099-K.

The lower 1099-K threshold was criticized by House Ways and Means Committee Chairman Jason Smith (R-Mo.) and Oversight Subcommittee Chairman Rep. David Schweikert (R-Ariz.), who wrote in an April 4, 2023 letter to Comptroller General Gene Dodaro, “[t]hese new requirements will have a significant impact on low- and middle-income Americans, including many working in the gig economy. ... While information reporting can help the IRS ensure accurate tax reporting and incentivize voluntary compliance with tax laws, those goals must be balanced against the burden that this reporting places on taxpayers, third party providers, and the IRS.  Many Americans who will likely be subject to these new requirements – particularly given the low reporting threshold of $600 – are also likely to struggle to afford the level of accounting and tax preparation services that might be needed.”  

On June 13, 2023, the committee voted 24-18 to report H.R. 3937, the Small Business Jobs Act, which included a provision to restore the prior 1099-K reporting requirements of 200 transactions or $20,000 annually.

The restoration of the higher reporting threshold for 1099-K should be approved by Congress, either in a bill like H.R. 3937, or separately, as quickly as possible to prevent the IRS from spending time and money preparing to receive and review thousands of 1099-K forms.  If this provision is adopted, taxpayers across the country would be protected from higher taxes, more audits, and complicated paperwork.  

Written by Ben Ottosson