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Sun Mar 7 2021 16:45:14

New Bill Puts Micro Sellers in Crosshairs of the IRS

By: Ina Steiner

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A provision in the American Rescue Plan Act of 2021 (aka the COVID relief bill) would put some people's online-selling activity in the crosshairs of the IRS. 

Some might say rightly so, but even people who sell their old stuff when cleaning out their basements and garages should sit up and take notice. 

If you use PayPal, eBay, Etsy, or any electronic form of payment processing to collect money from buyers, you will be impacted if the amount a single entity processes on your behalf exceeds $600.

Many online sellers are familiar with IRS Form 1099K, which marketplaces and payment processors send out each January to sellers who've exceeded $20,000 in gross receipts when collected in over 200 transactions. (For example, if you process $21,000 in 199 different transactions in a single tax year, the payment processor is not required to file Form 1099K, though what thresholds each company employs in practice we don't know and may vary.) 

A provision the 2021 Rescue Plan Act would lower the threshold considerably - it would require companies to send a 1099K to sellers for whom they've processed over $600, period. In our reading of the bill's language, it appears if you sell $601 worth of items, even in a single transaction, the payment processor is required to file Form 1099K.

The provision amends Section 6050W of the IRS tax code - the relevant language is contained in Section E:

SEC. 9674. MODIFICATION OF EXCEPTIONS FOR REPORTING OF THIRD PARTY NETWORK TRANSACTIONS.
(a) In General. - Section 6050W(e) of the Internal Revenue Code of 1986 is amended to read as follows:

"(e) De Minimis Exception For Third Party Settlement Organizations. - A third party settlement organization shall not be required to report any information under subsection (a) with respect to third party network transactions of any participating payee if the amount which would otherwise be reported under subsection (a)(2) with respect to such transactions does not exceed $600.".

It also states, "The amendment made by subsection (a) shall apply to returns for calendar years beginning after December 31, 2021." (We think that means it won't apply to transactions processed in 2021 - stay tuned.) 

It might catch "consumer sellers" by surprise and, once understood, might discourage them from listing on sites like eBay, Etsy, Poshmark, and Mercari, and encourage them instead to seek out classifieds-style sites like Craigslist and Facebook Marketplace, where transactions are often handled in-person with cash payments.

But the new provision may also impact casual sellers who do more than clean out their basements - even though they are supposed to report their earnings to the IRS whether they consider themselves "hobbyists" or not. 

IRS Form 1099K first applied to payment processing in tax year 2011 - it was crafted as part of the Housing and Economic Recovery Act of 2008, which included the provision as a mechanism to achieve a more precise tally of electronic transactions.

Seven years later in 2018, some sellers got a big surprise when they received 1099Ks, even though they were under the 1099K threshold. It occurred after Massachusetts and Vermont had retroactively passed new laws requiring payment processors to file 1099Ks for sellers who processed at least $600 in 2017, and no matter how few the number of transactions they processed. 

Other states may have hopped on the bandwagon since then, and it comes as little surprise that a few years later the Feds may be joining the party.

While Form 1099K isn't new, we published a refresher last month by tax guru Barbara Weltman: "What You Need to Know About 1099-K."

With all the provisions of the new bill, this particular one has flown under the radar - we began hearing reports this weekend, including an article in Politico on how it may impact gig workers like Uber drivers. 

Note that freelancers have always had payments over $600 reported to the IRS from the companies hiring them via Form 1099-MISC.

The House of Representatives passed the American Rescue Plan Act of 2021 legislation on February 27, 2021 and the Senate passed a revised version on March 6, 2021. (We believe the provision impacting 1099Ks remained intact in the Senate version.) The bill goes back to the House, which must approve Senate changes before the legislation can be signed into law by President Biden.

According to CNN, the bill includes some good news for small businesses such as funding for small-business loans and grants, as well as many other provisions, including aid to states and municipalities.

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Readers Comments

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by: terry55 This user has validated their user name.

Mon Mar 8 17:47:22 2021

INA--- Please keep on top of this, lord knows ebay isn't gonna do any updates, I run a business, LLC, on ebay and I keep all my records and get a 1099 every year but I know few friends that sell personal stuff for a few bucks who don't or keep records of stuff they bought years ago and honestly with the high rates of shipping now, $600 is not hard to do with even only selling a few things. If they passed this and date back to beginning of 2021 some may have passed that $600 already
appreciate the heads up though

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by: postbuster This user has validated their user name.

Mon Mar 8 17:50:10 2021

@ iheartjacksparrow

When you practice misdirection, you aim in misdirection.

Sound like any online businesses lately.
They are becoming promoters trying to steal your business away from you, on record.

When it's business, it's wrong.
When it's government, it's Evil.

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by: postbuster This user has validated their user name.

Mon Mar 8 17:59:57 2021

@ Silver Ice King

"But the $600 limit is so old and has not been adjusted upwards ever that I can remember despite all of the inflation and other increases in things like the minimum wage. "

^^^^^^^^^^^^^THAT!!^^^^^^^^^^^

Great perception!
Solid plan.

I WOULD vote you for treasurer.  Anywhere!

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by: flamingo on 1 leg This user has validated their user name.

Mon Mar 8 18:02:35 2021

This will trickle up and down.  The Flea markets, garage sales, craft stores, thrift stores, etc. will be hurt because people won't buy to sell online.

It will hurt eBay if people won't sell anymore if they have to pay taxes on "Grandmas pretty dishes" that they have no idea what she paid for them.

eBay, Etsy, Pay Pal and others  will have to raise fees again to produce the 1099K.  eBay raised fees recently because of poor sales in 2020.

And if they can and they will, Facebook Market Place, Craig's List will be next where you have to file! They will find a way. To Rob from the Poor to give to the Rich.  

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This user has validated their user name. by: RKTOYS

Mon Mar 8 18:42:56 2021

Just another attack on working people by the rich and they minions in Congress.  Bad enough that cancel culture and offshoring have devastated jobs for Americans.  Now they're out to make sure you can't work for yourself either.  Well F you bureaucrats.

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by: comments This user has validated their user name.

Mon Mar 8 20:05:20 2021

@Ina

I know it isn't a new tax in the general sense but the extra reported "income" but it is a new way to target the poor. The effects will be felt more by the poor to the extent I believe it will cause harm.

As far as the thresholds for 1099K. I think they are fine where they were. Businesses should have their gross receipts reported but not necessarily for those making over $600 because I think in most cases they are not making any profit. Its a "gotcha" move to trap anyone who doesn't have a receipt for that old widget in the basement. I think everyone should pay their taxes but these poison pills shouldn't be hidden in legislation. If the Biden administration wants to to reduce the threshold to $600 then he should say so publicly and let the voters decide. Obviously he would have been unelectable if anyone knew that so it is clearly shady and underhanded regardless.

So it is true that this is not a new tax but it does create new burdens and in some cases higher taxes where you have to pay more for insurance and more for tax filing.....Or when you have to pay tax on a sale that wasn't profitable but you simply didn't save the receipt for that old widget.

Prior to my days as a business seller I would go out and buy a new playstation game for $60. Play it and beat it. Then resell it for $30. If I did that a few times then the model of reselling is not a profitable one, nor did I intend it to be. None of that money was income so why do I have to tell the IRS that I like to play video games and resell them at a loss after I finish "consuming" them? If I didn't save the receipts or lost them then that is essentially a new tax IMO.

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by: fashionista This user has validated their user name.

Mon Mar 8 21:23:50 2021

It's so sad some people can't have an intelligent discussion without brining politics into it.

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by: 4yourinfo This user has validated their user name.

Tue Mar 9 00:27:09 2021

Just the other day I was dreaming now that eBay is processing most of my payments. The few payments il still be doing with PayPal will be under 20,000 so I'll be able to cheat the IRS! I guess that's now just gonna remain a dream.. just so you know - all those complaining any money you earn even 1.00 has to be reported... You may not have to file taxes if your total income is under a certain amount but once it's over the threshold every dollar has to be reported the 600 or 20,000 are just an added requirement for business to issue 1099 but even if you don't receive a 1099 you still have to report the money. If you make money on Facebook or craigslist or at the flea market that money legally has to be reported and you have to charge and remit sales tax. So technically this revision is nothing more than assuring compliance. And if you for some reason don't owe tax money on the  600.00 1099k you will be able to write it off as whatever reason you give on the taxes..

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by: 4yourinfo This user has validated their user name.

Tue Mar 9 00:45:38 2021

Give it a couple of years and paper money will soon become illegal. The IRS does not like cash they know about the billions of $ in deals that go unreported and I'm sure they will attack it very soon. Worried about the homeless etc. They'll give out free card readers.. it's coming  

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by: papergoy This user has validated their user name.

Tue Mar 9 08:36:48 2021

I really can't say anything but "cry me a river".  Welcome to what real businesses such as mine have faced the entire time.  Maybe now buyers will think twice about offering me $2.50 on a $25 item with free shipping as they will slowly begin to realize all of the expenses legitimate sellers face.  I don't feel bad for anyone being forced to pay their fair share- I pay mine.  And apparently no one has a problem with all of the comments about how people are going to go to nonreported sites (garage sales, facebook, fleas) so they can continue to cheat the government- you know those cheats mean the honest pay more.  Keep records- it's not hard. I am stunned by the reaction to this news- I would think the honest among us would say "it's about time." Guess there are fewer honest people than I thought.  

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This user has validated their user name. by: Rexford

Tue Mar 9 10:12:09 2021

I'd actually welcome this.  I used to get 1099s regularly from PayPal before these venues killed sales with their schemes.  I would prefer to have a 1099 when I don't meet the 20,000 threshold.  It lets me know exactly what my sales were on that venue.

1099 or not, I submit my sales, deductions and forms to my accountant every year.  I always feel better when I have documentation from the venues I sell.

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by: Vigilant Eye On eBay This user has validated their user name.

Wed Mar 10 03:20:42 2021

As reporting annually accumulated personal income (which includes flea market sales, garage sales, and yard sales) of $600.00 or more has been on the IRS books for eons, I have no problem with congress enforcing the existing statute through whatever means are necessary.

If people don't like the existing laws, they must petition their government representatives to change them.

Of course, the aforementioned statement only applies in an ideal world.

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by: ssusannss This user has validated their user name.

Wed Mar 10 11:18:36 2021

I’m moving out of state next year. I have a boatload of things I need to get rid of that I don’t want to take along. I refuse to pay tax on items I’ve already paid tax on, with the original purchase, especially when selling at a loss. Who keeps a receipt from things purchased 18 years ago?

Yard sales for me!

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by: Geetar This user has validated their user name.

Fri Mar 12 10:52:21 2021

What a joke. Most of those "micro sellers" are just selling stuff they no longer need, or use. So now your paying income tax on money you get from items you bought (with money used from income w income tax collected already)???? And sales tax is collected "AGAIN" WTF is going on here? This is OUT OF CONTROL. Gotta keep the money coming in for wars, bombs, and guns.

It's like buying a used car. Why is there sales tax charged?? It was originally collected when the car was new. This is BS.

We need a real insurrection. Grab every senator, congressman, pres, vice pres, and entire staff and hang them from the tree's in Washington. That should stop the BS for at least 50 years.

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by: leavingNY This user has validated their user name.

Mon Mar 15 03:22:11 2021

The democrats are destroying this country, with the FAKE lying media covering for their lying and ripping off American workers. We won't have much of a country left in four years of democrats anti american hatred toward American citizens. The democrats have severely divided this country. MY tax dollars are going to things like paying teachers NOT to work, paying government employees NOT to work while they all get cushy FREE medical insurance, pensions and benifits. MY tax dollars are going to pay for abortions in this and OTHER countries; As well as wasteful spending on Fort Pelosi.  

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by: railady This user has validated their user name.

Thu Mar 18 10:14:01 2021

@ fashionista - This conversation is totally impossibly completely political - because the issue is created by federal legislation and politicians looking for another way to raise revenue.  

Indeed - this 1099 requirement is a "revenue raiser" and not a new tax for the simple reason it is going to scare the beejeepers out of mostly poor and low income people, who in the past would not report such minimal amounts on their income taxes.  NOW they will get a 1099, frightening them because eBay (or whoever) will have reported their income to the IRS -- so instead of pocketing it, they will add it to their gross income and pay more tax.  

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by: railady This user has validated their user name.

Thu Mar 18 10:16:09 2021

Anybody leaving New York -- one of the better kept secrets has been that if you follow a spouse to a new job out of state, you can claim unemployment insurance when you quit your job.  

I worked for the Dept of Labor for a while and found that out.  PLEASE check, if you may be able to benefit, that this is still in effect.  They may have changed state law, I do not know.  

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by: AP This user has validated their user name.

Sat Mar 20 15:26:37 2021

Time to get in the game and take control.  This should  inspire you to fully engage in understanding business and taxation.  We got hit with this surprise in 2018 and have decided to change our lives.  Our wealth has grown SIGNIFICANTLY as a result.

First move is to begin deducting everything you can find in support of your "home business" including a portion of your housing expense dedicated to housing inventory and selling activities, utilities, mileage, business meals (save receipts and document the business discussed), travel related to securing inventory, etc.  

We then started considering other areas of our lives we could start taking up business activities, wound up levering a home equity loan to buy additional real estate, invested in short term stocks, and other gig work.  Next is estate planning efforts, potentially other tax entities to maximize where we earn $.

Let this change your life for the better.  It is the best middle finger you can stick up!  They hate success but reward it at the same time.

Enjoy the club!

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by: Steven This user has validated their user name.

Tue Mar 30 03:01:58 2021

Many posters are right in their assessment that this amounts to another tax on the poorer masses, who are the ones most likely to unload their personal belongings for a buck on eBay. Ironically, the same revenue from these taxes will be what's paying for all the stimulus, benefits, and relief in the Rescue Plan Act, including subsidizing the new upcoming migrant surges (they will need shelter, healthcare, food, etc), and anything else the government pleases. Essentially, they are taking from you to give back to you! That should be a lesson the next time we all ask for stimulus.

Not only has the government been assessing sales tax multiple times (with every resale of used belongings), now they will also assess income tax on those sales at least twice, essentially bringing the value of things you buy and later decide to resell to nil. This is especially true if you can't prove the value of your belongings and are audited, risking all the proceeds to be taxed as profit. One poster was right in saying that we do not truly OWN anything anymore, if we can't recoup our money invested in our property without being taxed for it several times.

Another venue that this may effect is cash being sent electronically as ''gifts'' or person to person. Venmo, PayPal, Zelle, Google Pay. Many young people share bills and use these venues regularly. This requirement will pose a new problem, presenting the issue of keeping account of all minor transactions and receipts, and proving where the money came from, and that it wasn't profit but a ''gift.'' Another individual was right in predicting that because of this, many will be driven to cash only transactions, precisely why the government and banks are disincentivizing and discouraging cash transactions (they can't keep track of them). Many vendors now do not accept cash. Try to go to a bank and deposit a fair amount of cash -- they will hound you on where the cash came from, and even suggest illegal activity. Yes, that happened to me at a bank. This serves to discourage people from using cash at all.

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This user has validated their user name. by: Marie

Wed Apr 7 20:52:21 2021

If people would just take the time to learn about some of this stuff it would help some avoid getting upset or aggravated.

The $600 limit was an old minimum that IRS use to have on their 1099 Misc.  Those doing contract labor for others were suppose to get 1099's if they earn a minimum of 600 in one year from a given company.  IRS did away with that rule a few years ago and did not institute a new minimum, they just said that all income needs to be reported.

Sellers on Ebay or elsewhere that are just selling stuff from their closets will likely be fine too.  There are provisions for them in the tax rules.  And it is understood that original receipts are not always available on these types of transactions.  But as long as the seller is ONLY selling their own stuff that they already owed, they will be fine.  But if they start purchasing stuff to sell or sell stuff for someone else, that will change.  So best not to mix this up on the same account.  

https://www.1040.com/blog/2019/7/12/selling-stuff-online
-taxes-for-etsy-ebay-letgo-and-more/

https://www.antiquetrader.com/collecting-101/behind-gavel-hobby-become-business

This
is designed to stop a whole lot of tax invasion that is going on out there.  I personally have no issue in getting those that should have been claiming their sales as income, to do just that.  

Much of the concern will have to do with those pulling state or federal benefits of some sort and they don't want this income stream to show up as it will affect the benefits they can draw from their state or federal government.

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