The Internal Revenue Service said on Friday that it is delaying by one year a new tax policy that will require users of digital wallets and e-commerce platforms to start reporting small transactions to the tax collection agency.
The delay of the rule comes in the wake of bipartisan backlash from lawmakers and an uproar from small business owners, who only recently became aware of the tax change.
The I.R.S. said that the delay is intended to provide a smooth transition period for taxpayers to comply with the policy, which was enacted as part of the American Rescue Plan of 2021 and which was supposed to take effect this year. Many users of services such as Venmo, PayPal, Cash App, Stub Hub and Etsy only recently became aware that they would be receiving I.R.S. tax forms associated with their transactions, sowing fears of surprise tax bills.
“The I.R.S. and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan,” Doug O’Donnell, the acting I.R.S. commissioner, said in a statement. “To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the I.R.S. will delay implementation of the 1099-K changes.”
He added: “The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”
Before the rule change, services like Venmo supplied users with a snapshot of their income called a 1099-K form only if they had received more than $20,000 and had more than 200 transactions. The forms were supposed to be submitted with tax returns to the I.R.S. and were intended to help determine how much a taxpayer owes.
Those thresholds were lowered to $600 for the entire year, regardless of the number of transactions, significantly broadening the number of people who are likely to be required to pay more taxes.
Lawmakers from both parties scrambled this week to scale back or reverse the tax measure in the spending package that Congress is set to pass this week, but none of the changes were ultimately included in the final legislation.
The Treasury Department, which oversees the I.R.S., has been under pressure from lobbyists and lawmakers to find a solution to the widespread confusion before taxpayers begin receiving the tax forms in the coming weeks.
“I urge the I.R.S. to use their authority now to delay the implementation and allow Congress to continue working to find a lasting solution that prevents this harmful regulation from impacting small businesses,” Senator Joe Manchin III, Democrat of West Virginia, said in a statement on Thursday.
