IRS will receive 30 million more 1099-Ks

The Internal Revenue Service expects to receive 30 million more Form 1099-K information returns in 2024 under a new lower threshold that was delayed last year, according to a new report.

The report, released Wednesday by the Government Accountability Office, said the IRS expects to receive about 44 million Form 1099-Ks in 2024, up from about 14 million. However, the report acknowledged that estimate may change as the IRS receives more information from large filers and states. The “IRS does not have a plan to analyze these data to inform enforcement and outreach priorities,” the report added. “This limits its understanding of changes in taxpayer burden.”

The American Rescue Plan Act of 2021 lowered the reporting threshold for the Form 1099-K. Previously, third parties such as eBay, PayPal, Venmo, Airbnb, StubHub and others had to file the information returns with the IRS if a taxpayer had annual payments of $20,000 and 200 transactions, but starting in 2023, reporting is required if a taxpayer has total annual payments exceeding $600.

The report acknowledged that taxpayers such as gig economy workers are likely to be confused when they receive the forms in the mail for the first time and may end up overpaying their taxes if they don’t deduct legitimate expenses.

“Many taxpayers will receive Form 1099-Ks who did not in the past, which may help some taxpayers comply,” said the report. “But, despite IRS communication efforts, it also may exacerbate confusion among some taxpayers, such as gig workers, who may not understand the taxability of their payments and taxes owed. For example, some of these taxpayers may not know how to calculate profit or loss and may not understand the information reported on the form. This puts them at risk of inaccurately reporting their incomes to [the] IRS or not meeting their tax obligations.”

House Ways and Means Committee chair Jason Smith, R-Missouri, warned of the impact that’s likely to be felt next tax season.

“Thirty million more tax forms flowing into mailboxes across the country will be a New Year’s nightmare for millions of Americans and a mess for the IRS,” he said in a statement Thursday. “The Biden administration itself had to deploy a legally dubious delay of this policy for a year precisely because it is unworkable. The whole plan is just another effort by Washington Democrats to use the IRS to target working families. According to the Joint Committee on Taxation, over 90% of this new tax burden will fall on middle-class families and gig workers who will be caught in the crosshairs of the Democrats’ tax scheme. Adding insult to injury, GAO’s report shows the IRS is ill-equipped to handle the implementation of this new policy while at the same time it does not even know if it will help the agency carry out its responsibilities. Like with so much of the Democrats’ tax policies, this is a solution in search of a problem — one that will confuse Americans and put them in danger of inaccurately assessing their own tax liabilities.”

The report also examined how the IRS can improve the use of information returns overall to enhance compliance and referred back to some of its previous reports. The GAO recommended the IRS implement its earlier recommendations to develop a collaborative mechanism to coordinate among the internal information return stakeholders, as well as to improve outreach to external stakeholders; research and develop potential recommendations to expand third-party information reporting on sole proprietors ‘ income and expenses; develop a plan to systematically evaluate information returns to improve compliance, and reduce fraud and reporting burden; work to determine the most appropriate thresholds for payment information reporting , including Form 1099-K; and analyze existing and forthcoming 1099-K data to better understand and gain insights into noncompliance and taxpayer burden to make enforcement and outreach decisions. 

The GAO also recommended Congress should consider requiring all taxpayers with rental real estate activity to be subject to the same information reporting requirements as other taxpayers operating a trade or business.