It’s not unusual for anyone with an old desk or bicycle that’s in decent condition but no longer needed to sell it online and make some extra cash.
But because of a change in tax law, these small-time online sellers might soon receive a tax form that few have seen before, a 1099-K. The change took effect for 2022 and might be confusing, experts say, possibly leading some people to pay taxes that they don’t owe.
Millions of people could receive the forms early next year, said Christopher Walters, CEO of Blucora, the parent company of TaxAct do-it-yourself tax software. “A lot of people are likely to be surprised,” he said.
What’s going on? In 2021, as part of the American Rescue Plan, Congress changed the rules for how online marketplaces and payment services must report transactions. The aim was to better track gig economy income that wasn’t reported to the IRS.
Before this year, online companies that process payments — including marketplaces like eBay and Poshmark and payment services like PayPal and Venmo — were required to send 1099-Ks only to sellers who exceeded 200 transactions and $20,000 in income annually. That threshold captured sellers running businesses, while excluding most people who were merely cleaning out their closets.
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