IRS delays $600 reporting threshold for third-party payments
Washington Wednesday: Critics worry lower reporting requirement for banking transactions will cause tax troubles for everyday people
Just two days before Christmas, the IRS announced that its $600 reporting threshold for third-party payments has been delayed, and won’t take effect during the 2023 tax season.
The $600 reporting threshold became law in the American Rescue Plan of 2021, and has not been rescinded. Under the current system, payment processors must report to the IRS the names of individuals who have received more than 200 payments in a year, exceeding $20,000 in total. The new standard is a total of $600, with no minimum on the number of transactions. The requirement affects people who use sites like PayPal or Venmo.
While the IRS argues that “the law is not intended to track personal transactions such as sharing the cost of a car ride or meal, birthday or holiday gifts, or paying a family member or another for a household bill,” critics argue that the $600 threshold will do just that, bringing small, routine transactions under IRS scrutiny.
Grover Norquist, president of Americans for Tax Reform, has been a vocal critic of the new, lower threshold.
“Unless you have the receipts for all of the things that you’re selling at some point, you’re going to be hit with a note from the IRS: ‘You owe us money on this. How would you like to be audited?’" Norquist said on a Fox News appearance this month. “Tens of millions of these are going out. It’s a disaster.”
The IRS acknowledges that concern, and says the delay will help ensure the compliance forms, 1099-Ks, go to the right people, and are not blasted out widely.
“The change under the law is hugely important because tax compliance is higher when amounts are subject to information reporting, like the Form 1099-K,” the IRS wrote in a statement on the delay. “However, the IRS noted it must be managed carefully to help ensure that 1099-Ks are only issued to taxpayers who should receive them.”
When last mentioned on CapCon, the IRS was planning to hire 87,000 new agents.
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.