IRS delays 1099-K rules for ticket sales, announces new $5,000 threshold for 2024
The IRS delivered on Tuesday an unexpected, but welcomed, early Christmas gift to gig workers, Taylor Swift ticket sellers and more.
The IRS surprised many tax professionals and others when it said it would delay new requirements for tax year 2023 that would have required third-party payment platforms, including Ticketmaster, StubHub and Venmo, to roll out a flood of 1099-K forms to individuals and the IRS beginning in January.
The IRS shook up the game plan for 2024, too.
It said it is planning to start with a $5,000 threshold for 2024 to phase-in the law. The new, two-year phase in, according to the IRS, will allow the IRS to address complex administrative challenges and educate more taxpayers as it moves toward the $600 limit in the future.
The $600 threshold is delayed until future years
A new $600 threshold — with no minimum number of transactions — would have been in place for the sale of goods and services completed in 2023. Meaning, if you sold more than $600 worth of tickets on StubHub, you'd get a tax form and so would the IRS.
Now, the old threshold stays put for 2023 activity. Beginning in January, the 1099-K paperwork would be required to be sent to those who had received more than $20,000 and had more than 200 transactions on the payment platforms in 2023.
The new requirement for 1099s was put into place in the American Rescue Plan of 2021 to encourage compliance for gig workers and others. Not surprisingly, the IRS said that "tax compliance is higher when amounts are subject to information reporting, like the Form 1099-K."
But this has been a difficult change to kick off, as accountants and others warned of mass confusion and frustration ahead.
The latest delay follows another one-year delay announced on Dec. 23, 2022. Then the IRS said the delay was to "help smooth the transition and ensure clarity for taxpayers, tax professionals and industry."
The additional time was designed to help reduce confusion, the IRS said last year, during the 2023 tax filing season and "provide more time for taxpayers to prepare and understand the new reporting requirements."
On Tuesday, IRS officials said it became increasingly obvious that even more time would be needed.
IRS tries to address confusion and flood of 1099s
The extra 1099s didn't just apply to profitable ticket resales, even though inflated prices on ticket platforms for Taylor Swift concerts this summer — and yes, the Detroit Lions — triggered publicity about the new 1099 standards this year.
A few days ago, I wrote about how anyone who resells their Detroit Lions tickets at a big gain, such as for the Thanksgiving Day game against the Green Bay Packers, now needs to be prepared to get hit with a 1099-K next year to pay taxes on their profits on their 2023 tax return. They would still owe taxes but many won't get a 1099 under the latest IRS phase in plan.
Tuesday's game changing move by the IRS means that people aren’t going to be flooded with 1099s next year or even in 2025 for the 2024 tax year.
Let's be clear. The tax rules haven't changed based on the IRS announcement Tuesday. You'd technically still be required to report a profit but there won't be a 1099 issued to you or the IRS by the ticket platforms and others to create a paper trail for 2023.
"All income, no matter the amount, is taxable unless it’s excluded by law whether a Form 1099-K is sent or not," the IRS stated Tuesday.
Plenty of tax professionals are likely to applaud the IRS move on Tuesday.
This year, some groups — including the American Institute of CPAs— supported House and Senate legislation that would raise the reporting threshold. Bipartisan Senate legislation, known as the Red Tape Reduction Act, would establish a $10,000 reporting threshold, instead of the $600.
The IRS did not disclose how it reached the $5,000 threshold for the phase in for 2024 activity.
Overseeing the new crush of paperwork is complex for the IRS, as well as payment apps and platforms, which had already begun asking for some taxpayer information.
But consumers also are terribly confused about when they'd get a 1099-K and when they wouldn't — and what they were supposed to do with it.
And don't be fooled: Some people are still likely to be confused if they get an odd 1099-K next year.
"Taxpayers should be aware that while the reporting threshold remains over $20,000 and 200 transactions for 2023, companies could still issue the form for any amount," the IRS stated Tuesday.
IRS officials said some taxpayers will still get a 1099-K next year for the 2023 tax year, for example, if the taxpayer faced what's called "backup withholding" on a payment platform for refusing to supply the company with taxpayer ID information, such as a Social Security number.
StubHub, for example, notes online that payment will be withheld from sellers until they supply their Taxpayer Identification Number.
We're talking Taylor Swift tickets, designer clothes, you name it
More people than many might imagine were about to get hit with a 1099-K next year.
The new issuing of 1099-K forms, according to the IRS, applied to "anyone who’s using payment apps or online marketplaces to accept payments for selling goods or providing services. This includes people with side hustles, small businesses, crafters, and other sole proprietors."
But the $600 threshold also would have included, according to the IRS, "casual sellers who sold personal stuff like clothing, furniture and other household items that they paid more than they sold it for."
And yes, it would have included sending 1099-Ks to many people who sold their Taylor Swift — or Detroit Lions — tickets at sky-high prices in 2023.
The 1099-K forms would have been sent to those receiving more than $600 when they sold furniture, a car or lot of baby clothes and accessories online. You'd pay taxes if you sold those goods at a price that's higher than what you paid for them.
Remember, the new requirement for 1099s was put into place in the American Rescue Plan of 2021 to encourage compliance for gig workers and others.
But this has been a difficult change to kick off, as accountants and others warned of mass confusion and frustration ahead. It's confusing because people use payment apps for all sorts of reasons, not just selling goods or services.
The new $600 threshold, for example, does not apply to personal transfers of cash on apps, like Venmo and PayPal, to send a friend or family member money for a birthday or split the cost of drinks or dinner. "These payments are not taxable and should not be reported on Form 1099-K," the IRS said.
The IRS earlier had expressed concern that the rollout of 1099-K forms must be managed carefully to help ensure that 1099-Ks are only issued to taxpayers who should receive them.
Another point of confusion: You could get a 1099-K for selling more than $600 in goods whether you made a profit or took a loss. "Selling items at a loss is not actually taxable income but would have generated many Forms 1099-K for many people with the $600 threshold," the IRS stated Tuesday.
So if an average football fan buys 10 tickets for $100 each — assuming a total of $1,000 in cost — but then resells all of the 10 tickets for a total of $600, you wouldn't report a profit. You also couldn't deduct a loss. But you would need a way to document what you paid for the tickets or other goods and keep good records.
The 1099-K will show how much you received when you sold the tickets or other items — not your profit or loss.
The IRS on Tuesday said it will have an "Understanding Your Form 1099-K" webpage at IRS.gov to help taxpayers who don't know what to do with a 1099-K or receive one in error next year.
The IRS stated: "If taxpayers sold at a loss, which means they paid more for the items than they sold them for, they’ll be able to zero out the payment on their tax return by reporting both the payment and an offsetting adjustment on a Form 1040, Schedule 1. This will ensure people who unnecessarily get these forms don’t have to pay taxes they don’t owe."
The IRS said Tuesday that its "phased-in approach" with a $5,000 threshold in 2024 will allow the IRS to review its operational processes to better address taxpayer and stakeholder concerns.
More:Selling Detroit Lions Thanksgiving Day tickets? New IRS rules could trigger tax bill.
More:IRS tax season to begin Jan. 23: What to know about smaller refunds
The IRS estimated that the new, significantly lower $600 threshold would have triggered an extra 28 million 1099-Ks being issued in 2024 for reporting income on 2023 tax returns.
The IRS based the estimate on information from a few large filers and some states that had enacted a similar reduction filing threshold.
About 44 million 1099-K forms were expected to be issued in 2024 covering tax year 2023, up 175% from 16 million in 2022, according to IRS estimates earlier.
Yes, we're talking about a Snowmageddon of paperwork — one that many anticipate could generate a great deal of tax revenue. Now, the IRS, Congress, taxpayers and tax professionals likely bought a little more time to figure out what to do next.
Contact personal finance columnist Susan Tompor: [email protected]. Follow her on X (Twitter) @tompor.