IRS Delays $600 Tax Reporting Threshold For One Year

In March 2021, congress passes a law requiring payment processors (like Paypal, Venmo, shopping portals and more) to issue a Form 1099-K to anyone with $600+ in payments processed. See these posts:

The IRS has now delayed implementation of this rule for one year. Thus, in most states, payment processors are NOT required to send out a 1099-K for those with transactions less than $20,000 during calendar year 2022.

Direct IRS Announcement link

Presumably, businesses like Paypal, Venmo, Swagbucks, etc. will follow the letter of the law and will not send out a 1099-K to those people.

The way it’s structured right now, businesses will be required to send out a 1099-K to anyone who had more than $600 in payments processed during calendar year 2023. (Those forms will be sent out in early 2024.) There is optimism that this number will be bumped up to something more reasonable before it actually goes into effect.
    Chuck
  • On December 24, 2022, 23:40
Tags: taxes

View Comments (123)

  • @will @chuck, received 1099k from PayPal for transactions just a little over 1k. It looks like there are a couple states that kept the 600 reporting requirement threshold.

  • I redeemed my Honey Gold (PayPal's own cashback/rewards systems) for cash into my PayPal balance and that triggered the Tax ID request from PayPal. PayPal themselves should know their own cashback system should not be taxed!!

    No wonder I and many others don't trust PayPal and other companies to process these forms properly.

  • I stopped my eBay garage sales to not deal with 1099's. If the IRS had told us this in March as opposed to the end of the year I'd have more space here. Thanks for nothing.

    • I'm confused - were you selling these items for profit? There would be nothing to deal with otherwise.

      • The issue for many on here is that it doesn't matter if there is a profit or not, this rule states that you will get a 1099K if the total sales figure is over $600 in one year. If you have a profit then pay tax on it, but many sell used goods at a loss and you have to PROVE all these transactions were sold at a loss, by referring to old receipts, etc. Otherwise it could be viewed as a gain. It opens a big door for the IRS to screw with you even more.

      • @guest_1520622 Whether 1% profit or 150% profit, they'd have to deal with 1099s. If you have an eBay garage sale and generate $600 in payments that goes through eBay, you'd get a 1099-k for $600 from eBay. From there, they'd have to map out the cost of the items sold, the fees, the shipping, and any other expenses and deduct that on a Schedule C. It's a lot of work if there isn't much profit.

        • OK sure - but if income is X and expenses is X+Y then the result of Schedule C is no income and no tax implications (unless you want to take a biz loss for your first 2 years). It wouldn't be difficult or time consuming to fill out.

          • It's subjective. I sell a bit on eBay and keep track but it's not a lot and I already do a Schedule C. Not everyone deals with Schedule C and this is opening up a lot of need for some. So if someone sells a lot of little things in a garage sale, that can add up to a lot of paperwork for little profit. If @guest_1519054 sells 1k of say, 50 items, and profits $100 after expenses, is it worth what could be time consuming, despite the minimal tax implications? I'm just saying that I can see what they meant by not wanting to deal with 1099s.

  • The money from PP & Venmo is only reportable if it is received via Goods & Services. Friends & Families payment do not count towards this threshold. Many people fail to realize this.

    • How would they know what is goods and services? Is it as simple as labeling the transaction on venmo? I buy a laptop from someone for 2000$ and mark it as payment to friend and family vs I give a 800$ gift to my relative and mark it as goods and services.

      • You mark it when sending, and the person gets buyer/seller protection plus venmo charge a fee.

    • Yes, PP & Venmo are only supposed to 1099-K on transactions marked as Goods and Services, but they have made mistakes in the past sending 1099-K forms on transactions not marked as Goods and Services by mistake.

    • Yes, but bulk payments presumably are. For example if someone received $601 from a cashback site some or all of that may not be taxable but PayPal wouldn't know this so presumably would have put it on a 1099 leaving the individual to figure out how to report the correct amount and potentially triggering a notice or review for not reporting the full amount.

  • Ebay, Paypal, Etsy, etc. are too busy with their woke agenda. They will never recover from plummet of transactions and higher-ups probably still don't have idea on what's going on.
    That's why company should never be partisan. They should lobby based on their business vision and interest, instead of pandering to liberal journalist and employees.

  • I've been mindful about this tax rule to the point that I've slowed selling goods on eBay (all used, and sold at a loss) and careful about funds going to Paypal from settlements, cash back portals, etc that may be misconstrued as taxable. The irritating part of this $600 threshold is that the burden is shifted on the taxpayer to prove that certain deposits are not taxable, by digging up old receipts to form a cost basis. This is very time consuming and a waste of resources.

    Correct if I'm wrong, but I am under the impression that the $600 limit applies to each individual processor, so you can sell under $600 of items on eBay and also receive less than $600 in cash back/settlement money etc. on Paypal and NOT receive a 1099K. If this is true, it may be wise to direct certain cash flows across different processors so you stay below the $600 threshold. For example, instead of Ebates/Rakuten sending cashback via Paypal, one can request a check instead by mail. For Upside, you can choose to link a little used checking account via Plaid and get paid that way. TopCashback can cash out via Visa egift card to avoid Paypal.

    DoC, maybe it would be helpful to put together a table that shows each cash back portal and options to cash out, as to avoid the $600 threshold?

    For eBay, the $600 is hard to avoid, so you may need to itemize each transaction on your return. I'm also not sure how Paypal/Venmo is treated since they are owned by the same company: is there a $600 threshold combined, or are they counted separately for 1099K purposes? Any insight would be helpful.

    Until there is official clarity about this tax rule and the dollar threshold, I will continue to stay under the $600 deposit limit with each processor. I spend many hours on my taxes each year and refuse to add to my work load because I try to save money via portals and sell some items on eBay. Just don't need this drama in my life.

    • The money from PP & Venmo is only reportable if it is received via Goods & Services. Friends & Families payment do not count towards this threshold.

      • What does this have to do with the OP? RandR does not mention anything about friends and family payments. Do people even read comments before copy and pasting replies?

    • Ffs, the IRS agents aren’t dumb and they have systems in place to ensure that they don’t waste resources on people selling their old underwear (unless you are a cute girl, then you are probably selling it at a gain). Do you seriously think they’ll asks for all your papers to prove you didn’t make many money? They’ll just take one look at your listings and move on, unless they point out to a consistent profit making pattern. The irs is all about a getting the best bang for their buck.

      • What do you mean?? They can't go after big sharks, so they tighten the screws on the small fishes. Isn't that obvious?

      • The government runs annual deficits in the trillions, plans to hire over 80k new IRS agents, and has lowered the threshold from $20k to $600…. So besides that everything is fine, nothing to see here lol.

        People just want to be left alone.

      • I do pay my taxes, where did you get the idea I dont? Did you read the part where I said I spend much time every year doing tax prep and that I don’t want to add to this burden with non taxable transactions?

        The IRS s already on a power trip with this rule, and will ensnare people in time wasting reporting, which may include you.

        • Easy solution:
          1. Become a millionaire
          2. Hire a high end tax firm
          3. Avoid all taxes. IRS don't touch big guys (Ref: the orange man).

    • This rule does not change what is and isn't taxable, nor does it change the paperwork that you should have been keeping

      Purposely avoiding reporting limits may be considered structuring, which is definitely illegal

      If you are doing everything by the book, you have nothing to gain by avoiding the reporting threshold

      • I've explained this numerous times. That 1099K is essentially a legal document that goes to you AND the IRS - that says David Davidson received $601 in income for the Tax Year 2022. That's it. There is zero basis of what the cost of goods sold were. That is where YOU, the taxpayer has to prove for EACH individual transaction that the DVD box set that you sold for $20, was originally $100 when you bought it.

        If you don't have that documentation (as RiskandReward mentioned) - and you won't have that documentation because that's insane - the IRS will presume it as taxable income. It's the entire reason people say that the IRS is "guilty until proven innocent".

      • Did you read what I wrote? I sell stuff on eBay below cost like a garage sale. I get cash back from portals that should not be taxed. None of this is taxable but the rule puts the burden on the taxpayer to prove it. That is the burden as I described.

        I can direct how I receive my money since it is my money. What law am I breaking if I want to get a check instead of going through PayPal?

        • @guest_1518674 One note in your comment about getting a check versus going through PayPal. Obviously, there is no difference on how you get your money but note that eBay also is in this reporting requirement. So it won't matter which one you go through. https://www.ebay.com/sellercenter/resources/2022-changes-to-ebay-and-your-1099-k

          I'm fairly certain you can estimate the original price, much like you can estimate FMV when deducting charitable contributions of goods. The onus would be on the taxpayer if they're audited. And while unlikely, it is a concern.

  • This is still a really stupid law.

    I do a lot of online sports betting. I am terrible at it, and thankfully have stopped. But what happens is if you deposit $1000 on DraftKings, and only end up withdrawing $500 via PayPal, they report it to the IRS as $500 in profit, as if you were a store getting paid. You can provide them with a win/loss statement and write it off (but that took me years to accomplish) but you still have to initially claim the money.

    So, despite losing a lot of money in 2020 I ended up having to pay an additional $3.7k federal and $1.2k state because I initially didn't claim these.

    Two lessons: don't gamble, and if you do, don't withdraw via Venmo or PayPal.

    • This rule does not change what is and isn’t taxable, and so would have no bearing on your gambling winnings/losses

      • Never said it did, I was just saying for my situation it should never have existed.

        PayPal should be able to identify that a gambling site giving me money is different than someone paying for me an item on eBay.

        • I remember years ago, a neighbor was a huge scratch-off ticket lover and would collect all of the discarded tickets at the convenience store so that they could show how much they spent to get the $500 or whatever amount and avoid paying taxes on it. :)

      • What the rule does is impose a burden of reporting and record keeping on money transmitters and individuals based on a seemingly inconsequential dollar amount of $600.

        I can totally understand something closer to $20,000 but the $600 limit is just asinine.

        All-in, it's a really stupid rule and sends a chilling message to those who use these apps or sell items secondhand and receive funds via these platforms.

        • I agree $600 is low but makes sense given the other 1099 minimum reporting. They should raise that across the board. So many people running scared on this rule as if their dirty little secrets are about to be exposed.

          Unless you’re selling 100s of items a year on eBay, in which case you should be considered a business, what’s there really to do except an annoying extra form that you can claim expenses to offset any 1099. The IRS is going after those eBay businesses who generate thousands per month in profits and don’t report it. Or the under the table paid freelancers.

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