IRS delays much-criticized new tax rule on side hustles over $600

Plans to force millions of Americans to report Venmo, PayPal, and other third-party payment app transactions over $600 have been delayed by the Internal Revenue Service after it admitted 'confusion' around the controversial policy.

The Biden Administration's American Rescue Plan requires the companies to send a 1099-K form to customers who received 'gross payments for goods or services that exceed $600'.

The earnings were already taxable, so the law is aimed at codifying how they are reported to crack down on fraud. But on Friday, the IRS delayed the implementation of the rule by one year.

Acting IRS Commissioner Doug O'Donnell said: 'The additional time will help reduce confusion during the coming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.'

Taxpayers will no longher have to report Venmo, PayPal and other third-party payment app business transactions over $600 to the IRS in their 2022 tax returns after the change was delayed

The new tax-reporting requirements require e-commerce platforms to inform the IRS about users whose revenue exceeds $600 using a 1099-K tax form.

Under the current rule, this is only applicable to people who made more than 200 transaction in a year and had at least $20,000 of revenue.

The companies send a 1099-K tax form to users who meet the criteria and those people must ensure they include the amounts when calculating their taxable income. Errors could lead to an audit by the IRS.

Critics condemned the plan for adding a fresh layer of bureaucracy to the tax filings of millions of Americans.

Taxpayers who fall within the new law will receive a 1099-K form from each of the third-party payment companies they conducted business through. The change was expected to take effect in time for the 2023 tax filing season but has been delayed by a year

The new rule is aimed specifically toward business and side hustle transactions, so if you are sending money to a friend or collecting a one-time payment, the new rule most likely won't apply to you.

When it comes to selling personal items online, you will only have to report payments if you make a profit on items over $600 one the rule does change - not if you make a loss.

So if you are selling a sofa second-hand for less than you originally paid, for example, the new legislation will not affect you.

According to the IRS, taxpayers who fall within the new law will receive a 1099-K form from each of the third-party payment companies they conducted business through.

Professionals have estimated the number of 1099-Ks alone that could be doled out is as high as 20 million and cause major delays at the IRS 

Worries have risen over the tax change, fueled by Republican lawmakers who suggested individuals who earned cash outside business transactions could be affected.

'If you sold a couch, re-sold tickets at the price you paid, or just did some extra work on the side, you could trigger greater scrutiny from the Internal Revenue Service (IRS),' Republicans on the House Ways and Means Committee wrote in a statement earlier this week condemning the change.

While those who did 'work on the side' would have to report their earnings if they exceeded $600, as it falls within the realm of taxable income, taxpayers who earned cash by selling a couch or tickets would not be affected if they do not make a profit.

PayPal has recently tried to quell these fears by reiterating that the average use of their platform, or Venmo's, would not subject taxpayers to IRS scrutiny.

'This doesn't include things like paying your family or friends back using PayPal or Venmo for dinner, gifts, shared trips,' PayPal said in a statement.

'For the 2022 tax year, you should consider the amounts shown on your Form 1099-K when calculating gross receipts for your income tax return,' PayPal said. 'The IRS will be able to cross-reference both our report and yours.'