Well, Congress has stepped in it, at the request from the IRS, then the IRS has delayed the start of it again.
What am I talking about? Closing the reporting loophole started with the rise of third party payers and GIG income sources.
Examples of what I’m talking about… Third party settlement organizations you may have heard about that include PayPal, Cash App, and Venmo. Online auction and marketplace services such as eBay and Amazon. Gig economy platforms such as Uber, Lyft, and Airbnb. Also, cryptocurrency processors such as BitPay. Craft or maker marketplaces such as Etsy. Ticket exchange or resale sites such as Ticketmaster. Finally, all crowd funding organizations like GoFundMe, etc.
Before the new law passed in 2021, the form 1099-K was for reporting gross annual earnings over $20,000 and more than 200 transactions in a calendar year. This became a loophole for earning up to $20,000 in income that was paid through one of the above listed sources and getting away with not reporting the income without tipping off the IRS.
So, at the IRS’ request, Congress changed the law, effective 2022, dropping the reporting threshold to $600. BUT the IRS got cold feet and delayed the requirement to 2023. Now they have delayed it once again to 2024, although some folks will start to get form 1099-Ks, not everybody will yet. The IRS is afraid of suddenly receiving up to 44 million new 1099-Ks, many filed by mistake, causing the IRS computers to send out a LOT of incorrect notices.
In 2024, the IRS has temporarily raised the threshold from $600 to $5,000. The $600 threshold will then kick in in 2025.
There is an ongoing debate about whether $600 is too low. That $600 threshold comes from 1954 tax law. Today, inflation adjusted, that amount would be $6,862. There is a push growing to amend this 2021 law and raise the threshold to $10,000. Maybe we will see that tacked onto the new tax law running its way through the halls of Congress? Who knows.
In the meantime, there are eight states that enacted their own 1099-K reporting thresholds. Arkansas -$2,500; District of Columbia -$600; Illinois -$1,000; Maryland -$600; Massachusetts -$600; New Jersey -$1,000; Vermont -$600; and Virginia -$600. Now you have a list of states that have bad tax laws. These would be good states to avoid if you are ever contemplating taking a new job and moving.
Have you heard? Prov 15:6 says, “In the house of the righteous is much treasure, but the income of the wicked brings trouble.”
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