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To avert taxpayer confusion in the upcoming tax season, the IRS is delaying a rule that would have required e-commerce sites and payment platforms like eBay EBAY, +0.12%, Etsy ETSY, -0.32% and PayPal PYPL, +0.67% to send out tax paperwork to a much wider swath of people in 2023.

Beginning next year, payment platforms were supposed to send tax forms, known as a Form 1099-K, to people who received at least $600 via these types of sites and payment platforms. The forms are typically triggered when a recipient receives at least $20,000 and has had at least 200 transactions.

E-Commerce businesses, accountants and others pushed for a higher threshold, saying the batch of paperwork would be an administrative headache for companies and the backlogged IRS, and also stir up confusion among taxpayers. These groups applauded the pause announced Friday.

The threshold was lowered in the American Rescue Plan of March 2021. Recent lobbying efforts to raise the threshold as one part of the year-end spending deal proved unsuccessful. On Friday, the House passed the $1.7 trillion spending bill, which now awaits President Joe Biden’s signature.

The IRS said the upcoming tax year will be a “transition period” for the platforms that were due to adopt the now-suspended reporting requirements, including Venmo, PayPal and CashApp.

Acting IRS Commissioner Doug O’Donnell said IRS and Treasury officials heard the concerns about putting the new, lower reporting requirements into practice.

‘The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.’

— Acting IRS Commissioner Doug O’Donnell

“To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements,” O’Donnell said.

One organization pushing for higher reporting thresholds, which included companies like Airbnb ABNB, +0.45%, eBay, Etsy and PayPal, called the delay “great news for millions of Americans.”

“We appreciate the IRS providing this critical relief so that millions of people aren’t unnecessarily burdened with tax forms in 2023 for splitting meals, selling used goods, paying back a friend, or other instances where no taxable income was generated,” said a spokesperson for the Coalition for 1099-K Fairness. The delay creates a chance for lawmakers “to find a common-sense and permanent solution.”

The 1099-K is geared to report business income from goods and services, and the required tax obligations. But many people use payment platforms to pay back friends and family.

The IRS said the lower $600 threshold “is not intended to track personal transactions such as sharing the cost of a car ride or meal, birthday or holiday gifts, or paying a family member, or another for a household bill.”

And that, critics said, was part of the problem: How do payment platforms distinguish between payments for personal expenses versus payment for goods and services?

Another source of confusion: The rules surrounding tax obligations when personal property is sold at a loss.

Personal property sold at a profit can face a capital gains tax. But when personal property is sold at a loss — like secondhand items sold at a garage sale or online — capital-loss tax rules do not apply. Critics said the paperwork might confuse many casual sellers into thinking they faced a capital-gains tax when they did not.

“We appreciate the IRS stepping in and providing a one-year delay, and are encouraged that they recognized the threshold decrease would have caused confusion and uncertainty for Americans this tax season,” said an eBay spokesperson.

The American Institute of CPAs cheered the delay, calling it “the right move for taxpayers, tax practitioners and for the IRS” and urged a higher reporting threshold.

Related:

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