Pappas Continues Bipartisan Call to Revise 1099K Reporting Requirements

Today, Congressman Chris Pappas (NH-01) and Congressman Ralph Norman (SC-05) sent a joint letter to House leadership requesting immediate bipartisan reform to Form 1099-K reporting requirements. As the leaders continue to craft their end-of-year legislative package, Pappas, Norman, and 27 other Members are urging Congress to raise the Form 1099-K reporting threshold. 

"Selling used goods online is a pathway for Granite Staters to supplement their income and find old items a second life. While these transactions do not create a taxable income, burdensome reporting requirements may lead to a seller’s incorrect overreporting of income and resulting ineligibility for tax benefits,” said Congressman Pappas. “It’s vital that this issue be addressed to eliminate unnecessary confusion. I urge House leadership to heed this bipartisan call to raise the reporting threshold for Form 1099-K filings and support this commonsense fix.” 

“Our priority should be to enable greater access to flexible earning opportunities, especially at a time when hard-working Americans are struggling to make ends meet due to four-decade high inflation. The last thing taxpayers need is additional government red tape and burdensome, unnecessary paperwork for online sales that do not produce income tax liability,” said Congressman Norman. “I implore House leadership to significantly raise the reporting threshold for Form 1099-K filings prior to millions of Americans needlessly falling victim to the IRS.”

Pappas’s Cut Red Tape for Online Sales Act would raise the reporting threshold for 1099-K reporting from $600 to $5,000 and require entities to issue a plain-language description of the taxability of income reported on Form 1099-K to reduce confusion among online sellers. Pappas’s legislation was listed on the National Taxpayers Union’s 2022 “No-Brainer” list of bills Congress should pass, and his repeated calls to raise the reporting threshold are supported by the American Institute of CPAs (AICPA).

Read the letter here and below:

Dear Speaker Pelosi and Leader McCarthy:

As you continue to craft a year-end legislative package, we want to bring your attention to concerns regarding the new reporting threshold for Form 1099-K filings.

As you know, the American Rescue Plan Act (ARPA) of 2021 amended section 6050W(e) of the Internal Revenue Code and lowered reporting thresholds for Form 1099-K filings from $20,000 in aggregate payments and 200 transactions to denominations of $600 in aggregate payments, with no minimum transaction requirement. This legislation went into effect on December 31, 2021, meaning all payments that occur throughout 2022 are subject to this lower threshold.

Online platforms and third-party payment networks like Venmo, PayPal, Etsy, and eBay will begin issuing Form 1099-Ks to users in January 2023. Previously, these platforms only had to send these reporting forms to users and the IRS if users received at least $20,000 in 200 or more separate transactions. This drastically lower threshold means that millions of individuals will receive Form 1099-Ks for the first time in 2023 – often in instances where there is no tax liability whatsoever, creating significant confusion and administrative challenges.

For example, selling a used good such as a college textbook or an old piece of furniture for less than the original purchase price will not create any taxable income. However, these transactions will now trigger reporting requirements, yielding confusion for online platforms and taxpayers, which could result in overreporting of income and therefore overpayment of taxes as well as ineligibility for certain tax benefits. Numerous individuals could be forced to hire costly tax professionals and keep onerous records and receipts or could be misled into thinking the arrival of a Form 1099-K represents taxable income they must report.

This lower threshold places unnecessary scrutiny on people who sell used items online as part of a virtual garage sale or who sell old clothes – payments that are generally non-taxable in any case. This increased reporting will further complicate the already difficult tax compliance burden that filers face.

Millions of Americans have sold an item online without running a business of any kind. A recent Survey showed that out of adults who sold goods online in 2021 and made less than $20,000 in online sales, nearly 40 percent said the new mandate poses an economic hardship. 74 percent of these individuals sell online to help pay for critical personal expenses, like medicine, groceries, rent, and other bills. Unfortunately, nearly 70 percent of respondents said they are likely to stop selling online or sell less online based on these new requirements. Tax laws surrounding online sales should account for the millions of Americans using online marketplaces only for occasional transactions and transactions that do not produce a tax liability.

Additionally, already-strained IRS resources will be spent processing hundreds of millions of new forms – even when no reportable income was generated, which will only exacerbate processing delays for taxpayers and small businesses. At the end of May 2022, the IRS had a backlog of 21.3 million unprocessed returns. Tax professionals estimate the number of 1099-Ks issued next year alone could be as high as 20 million.

The drastic reduction to the reporting threshold for transactions on third-party networks will hurt millions of Americans. We encourage you to consider the immediate need for bipartisan reform to the Form 1099-K reporting requirements, and we urge you to significantly raise the $600 reporting threshold before the end of the year.

Sincerely,