If you operate an online marketplace, you may have heard of the Coalition for 1099-K Fairness. This coalition is a nationwide effort to protect casual online sellers and microbusinesses from unfair tax and privacy burdens by raising the 1099-K reporting threshold from $600 so that this new policy is not overly broad and burdensome. If you're unfamiliar with the Coalition for 1099-K Fairness, you may wonder what it is and why it's crucial to get involved. In this blog, I'll give an overview of the Coalition for 1099-K Fairness, explain why it's important, and discuss the impact on startups and other small businesses operating online. Most importantly, I urge you to visit their website and get involved, as there is a short window between now and December 23rd to impact change.
What is the Coalition for 1099-K Fairness?
The Coalition for 1099-K Fairness is a group of online marketplaces, casual sellers, entrepreneurs, online seller communities, and consumer advocates committed to maintaining accessible, fair, and safe marketplaces for the sale of goods via online platforms, while empowering entrepreneurs and microbusinesses, trying to get their business off the ground by selling online. The mission of the Coalition is to raise the new 1099-K reporting threshold from $600 to a level that makes the policy more targeted and equitable, while also ensuring that those who do not owe taxes on used items are not needlessly penalized. For instance, raising the threshold to $5000 would ensure that 86% of casual sellers were not adversely impacted. The outcome will be fairness for casual sellers who otherwise may over report income for the sale of goods for which they owe no taxes.
Why is the Coalition for 1099-K Fairness Important?
In previous years, an IRS Form 1099-K was issued to taxpayers if they sold more than $20,000 in goods over 200 or more transactions in a given year. The American Rescue Plan Act reduced the sales threshold to $600 and removed the transaction requirement beginning in 2022. The result is that any seller should be issued a 1099-K for one or more transactions totalling over $600. If Congress doesn't act quickly, millions of American citizens and emerging companies will receive 1099-Ks in January 2023, potentially with no tax liability whatsoever, leading to significant administrative difficulties. An administrative burden that many online marketplaces are ill-equipped to navigate.
The Consequences: Taxpayer Confusion, the Possibility of Taxpayer Information Being Revealed, IRS Slowdown
The new tax filing regulations have a greater impact on casual merchants than those who have never been given a 1099-K form before. Most newly impacted transactions involve selling second-hand possessions, usually for less than what was initially paid for them. For example, people selling used clothing they no longer wear, young couples selling baby equipment when they’re done having children, or baby boomers downsizing. As a result, when these taxpayers receive 1099-K forms, the contradictory information will likely overwhelm them. Some might end up reporting too much income, some might find it hard to document the worth of the items sold, and others may be obligated to seek the aid of a tax specialist to ensure they comply with the rules.
Marketplaces take many steps to ensure the safety of their users' "sensitive and confidential" information. Nevertheless, taking into account the current state of online security, any plans to significantly expand the amount of personal data the IRS collects must be thoroughly re-evaluated to prevent unfavorable outcomes and misuse of taxpayers' private data.
This new mandate also puts a greater burden on the IRS. According to tax experts, the number of 1099-Ks released next year could reach approximately 40 million. Unfortunately, since many of these casual sellers will not have taxable income from these transactions, the additional weight on the IRS is all for nothing.
Why You Should Join the Coalition for 1099-K Fairness Now
With Congress set to adjourn mid-to-late December, there are precious days left in this session to change the 1099-K reporting threshold from $600 to stop the tsunami of 1099-Ks that will be issued under this new provision in January, creating confusion and chaos at a time when the economic outlook remains uncertain. To be successful in this effort, the Coalition needs the support of marketplaces and their sellers by way of outreach and engagement in the legislative process. There is no time to sit on the sidelines - now is the time to act! Visit the Coalition for 1099-K Fairness website to learn how you can get involved. For more information about joining the Coalition and making your voice heard, reach out to Arshi Siddiqui or Christina Barone at Akin Gump by email at asiddiqui@akingump.com / cbarone@akingump.com.
The Bottom Line
The recently approved 1099-K provision has now taken effect, resulting in considerably reduced tax reporting thresholds for small businesses and individuals for the upcoming 2022 tax year. It’s essential for Congress to take immediate action to raise the 1099-K reporting threshold. The Coalition for 1099-K Fairness is working together to improve the accuracy of the 1099-K tax form and prevent significant problems for online marketplaces and their customers. To learn more about the Coalition for 1099-K Fairness and get involved, visit their website here.
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