Congress has 43 days to act to protect casual online sellers and microbusinesses from “unfair tax and privacy burdens,” according to a coalition of online marketplaces.
The countdown clock appears on 1099kfairness.org, the website of lobbying group Coalition for 1099-K Fairness founded by eBay, Etsy, Mercari, OfferUp, Poshmark, Reverb, and Tradesy in response to changes in online tax reporting thresholds included in the American Rescue Plan Act of 2021.
The sense of urgency was conveyed in an email invitation from the coalition to reporters to a Zoom call explaining the issue: “If Congress does not act before the end of the year, casual online sellers and small entrepreneurs will face increased IRS scrutiny for low-dollar online sales.”
As the IRS explains, payment processors had been required to report gross payments that exceeded $20,000 and over 200 transactions, but beginning with tax year 2022, they are required to report gross payments that exceed $600 – and no matter the number of transactions. The IRS itself has been issuing bulletins to advise tax professionals and taxpayers about the new rules.
Note that the law does not change taxpayers’ obligations, but rather, it is designed to bring them into compliance. Some sellers are sympathetic to the confusion the new reporting will likely cause casual sellers, others say they hope it will make it fairer to those who do report their ecommerce earnings.
Etsy reminded sellers this week of the new reporting rules (“Now’s the perfect time to double check that your tax details are up to date because you may receive a 1099-K form in the new year”).
But eBay has been working aggressively to galvanize its sellers to act. It emailed sellers and published an announcement asking them to reach out to their senators and representatives to request them to raise the reporting threshold above $600.
Roll Call reported on additional details of the legislative push to change the reporting threshold. It interviewed Rep. Chris Pappas who is among lawmakers who believe the threshold dropped too far. “He points to people selling used goods from around their homes who might surpass the $600 limit but would likely be auctioning off items for less than they bought them for and don’t owe any tax,” according to the publication.
Online sellers report having received emails from eBay asking them to take action. One reader forwarded the email from eBay and said, “and yes I did “send a letter” as requested.”
Hi (name redacted),
Earlier this week you may have received an email or a Message Center notification from eBay about a tax law that will soon impose completely unnecessary tax reporting requirements on millions of online sellers.
Starting January 1, 2023, eBay and other online marketplaces will be required to issue reports for sellers who have more than $600 in annual sales to the IRS. That means millions of eBay sellers, including those who may only sell a few items a year, will have their sales reported and will need to keep careful records of their transactions – even if no taxes are owed. We need your help in asking Congress to amend this law before it goes into effect.
Please join us in urging Congress to raise the tax reporting threshold before the new law goes into effect. Click here, and in a few easy steps you can ask Congress to raise the tax reporting threshold before the coming deadline of January 1, 2023. Your voice matters – together, we can make a difference for all online sellers.
Sincerely,
The eBay Government Relations Team
Click Here to Contact Your Legislators
Its mute to me, MO dropped the 1099 to $1200 last year, this won’t change a thing for MO or the other low 1099 states. Funny how ebay and the rest are worried about 1099’s but don’t give a damn how raising shipping costs are hurt small sellers more.
I don’t understand why these 3rd pty payment processors–eBay, Etsy, Paypal, Amazon, etc.are allowed to collect sales tax but sellers don’t receive any documentation that the taxes were actually paid to the states.
That’s the first comment I wish to make on an issue that has been bugging me since around 2019.
Second, I recently read that some states were pushing to enact payment of income tax from sellers for items purchased & shipped to their state. (I believe it comes to the nexus on this but that didn’t protect us for state sales taxes.) If this happens it may very well be the demise for micro businesses.
(I know from experience that NY State throws the burden of paying sales tax on purchases brought into the state of NY onto the buyer.)
CVSharkey, the only reason they do it is because there’s money. New York State pays vendors a tiny percentage for collecting tax on the state’s behalf. These online payment processors keep that payment after an algorithm does the work. Also, you’re on your own if they screw up and trigger an audit. As always, you’re responsible for their behavior even when you can’t change it, and they’ve taken the money that might cover the costs.
I think the REAL motivation behind the marketplaces that founded 1099fairness.org is that people who have been selling on those sites will be closing accounts in droves, for fear of the IRS if the limit is a measly $600. Meaning the marketplaces are going to lose huge amounts of money.
@tsme35 – If I am not mistaken, we’re talking apples and oranges – State income tax vs. Federal income tax. It may be $1,200 in your state but it’s going to be $600 nationwide. Why do you think all those thousands more IRS tax examiner positions were created — in anticipation of what’s always been the case — most Little Guys do not have the wherewithal to challenge audits and they sure need hard money to pay for the billions they’ve been giving away. I’m not a tax expert, but it looks like Missouri residents will be facing two thresholds: $1200 at the state level AND $600 at the federal level that didn’t use to be a problem because before it was $20,000/200.
@cvsharkey – I agree! Because I can’t know what happens to funds collected by others, I am doing my best to keep documentation that the marketplaces I use have collected any taxes due on my transactions, effectively removing me from any responsibility for collecting/remitting those funds. I don’t see any of these marketplaces going to the time/expense of sending sellers reassuring confirmation that they’ve remitted the funds to individual states.
Indeed, another side of this coin is that for years, states have been working to collect tax on purchases people make from BOTH out-of-state sellers and “undocumented” transactions within the state. Technically there are two types of state tax on purchases: Sales tax, paid at time of purchase to a seller in your state (sellers are responsible for collecting it), and Use tax, owed on items that someone buys without paying state sales tax on (regardless of in which state – or country – the purchase was made). Use tax is remitted later by any buyer who doesn’t pay state sales tax at the time of purchase, regardless of where the purchase was made.
@ CV Sharkey- good points, or like my telephone carrier when i movedd to a different county- they collected taxes on my bill from BOTH counties for 6 months. i contacted state sales tax and SPRINT- finally gave up and moved carriers
who really thinks marketplaces have small sellers interest on this or any other lobbying
(the one about not giving contact info, gets me all the time lol)
This is just 1 step in making things unnecessarily harder on everyone. The Government is not known to make things easier for the average citizen.