IRS again delays small-business tax-reporting requirement (Courtesy of the Jacksonville Business Journal) — The IRS has delayed a requirement that business owners and freelancers report more than $600 in income from platforms such as PayPal and Venmo.
The agency in a recent notice said it will instead phase in that reporting requirement over the next few years. Taxpayers will be required to report total income of more than $5,000 for the 2024 tax year, more than $2,500 for the 2025 tax year and, finally, more than $600 for 2026.
Meanwhile, the IRS will not penalize anyone for failure to withhold or pay backup tax during the 2024 calendar year but will do so for 2025 and onwards, the agency said.
This is not the first time the IRS has delayed the reporting requirement, having done so in 2022 and then again in late 2023 after a barrage of criticism regarding the move. In 2023 and before, third-party marketplaces and payment apps were required to send out 1099-K forms to taxpayers who received more than $20,000 and had more than 200 transactions.
Gary Massey, managing director at accounting firm Massey and Co., said in an email the reporting requirements apply to platforms such as Venmo, PayPal, eBay, Etsy, StubHub and Airbnb, and the IRS intends to gradually ramp up over time the number of people and businesses subject to the reporting requirement.
“The IRS computers will be looking for mismatches, where the payments reported on the 1099-K do not agree to the gross income number on the tax returns,” Massey said. “When this happens, expect IRS automated notices to start coming in the mail. Do not ignore these notices. They will require a detailed response.”
What should small-business owners expect?
In the coming years, if income from these platforms exceeds the IRS thresholds, business owners should expect to receive a form in the mail that discloses their income from those platforms. They should also expect to have to provide additional information to the platforms, said Brandon Underwood, an audit manager at McMahon and Associates.
“Ultimately, small-business owners and freelancers should plan to maximize their deductions and tax credits by keeping accurate books and records,” Underwood said in an email. “It will also be beneficial to seek counsel from an accountant or tax consultant to help them reduce or eliminate any potential tax liability at year-end.”
The rule stems from the American Rescue Plan Act of 2021 passed during the Covid-19 pandemic, which lowered the original threshold with no minimum number of transactions and set the initial deadline for after Dec. 31, 2021.
The National Federation of Independent Business has called upon Congress to repeal the requirement entirely.
“While this IRS announcement sets the threshold for 2024 and prevents many Americans and small businesses from being inundated with new Form 1099-K reporting requirements, it doesn’t stop the main problem of the upcoming onerous $600 requirement,” said Jeff Brabant, vice president of federal government relations at the NFIB, in a statement. “This requirement would make anyone who uses an online platform to send more than $600 to another person, even for rent, groceries, or concert tickets, to register the transactions immediately with the IRS.”
Despite some efforts in Congress to repeal or alter the threshold, none have become law.
Other new business rules delayed
The delay in the reporting requirement is not the only reprieve small-business owners have recently received.
Millions of small-business owners had been staring down a deadline to report ownership information to the Treasury Department as part of the Corporate Transparency Act, but that requirement is now up in the air after a court’s intervention.
Judge Amos Mazzant III of the U.S. District Court for the Eastern District of Texas on Dec. 3 issued a nationwide injunction halting the implementation of the new requirements, which call for businesses with fewer than 20 employees to provide names, dates of birth, addresses and other identifying information about its owners.
The move was part of a larger effort by the Department of the Treasury’s Financial Crimes Enforcement Network to crack down on money laundering and other financial crimes. Existing businesses initially had until Jan. 1 to report such information.
That ruling came soon after the Department of Labor’s attempt to extend overtime eligibility to millions of new workers was struck down in court. The U.S. District Court in the Eastern District of Texas found the department overstepped its authority under the Fair Labor Standards Act to raise minimum salary levels high enough that it “essentially made an employee’s duties, functions or tasks” irrelevant to whether they qualified for overtime.