The IRS published a new tax tip in its email newsletter it sent to small businesses on July 22, 2022. The crux of the tip: if your hobby earns income, you must report it on your tax return.
The newsletter pointed to “IRS Tax Tip 2022-106” published on the IRS website on July 13, 2022, which explains the rules. The new tip comes half a year before people who may never have received Form 1099-K from payment-processors like PayPal and Venmo will receive them next year due to a lower reporting threshold for tax year 2022.
As the IRS explains on a separate page on its website, payment processors were required to report gross payments that exceeded $20,000 and over 200 transactions prior to tax-year 2022, but for returns for calendar years after 2021, they are required to report gross payments that exceed $600 – and no matter the number of transactions.
In the spring, eBay, Etsy, Mercari, OfferUp, Poshmark, Reverb, and Tradesy created the Coalition for 1099-K Fairness in an effort to get Congress to increase the tax-reporting threshold for sales on online marketplaces.
eBay sounded the alarm again in May, asking sellers to reach out to their members of Congress to urge them to pass a bill to raise the threshold “and limit the number of sellers getting these unnecessary forms.”
Regardless of the IRS tax tip issued this month, it’s likely many people will be taken by surprise next year when they receive a Form 1099-K and realize what they had considered dabbling in a hobby resulted in a tax obligation.