Legislation could revise new 1099-K reporting requirements
Selling used goods online may trigger additional reporting next year
On March. 15, Congressman Chris Pappas introduced legislation to raise the threshold for 1099-K reporting for goods sold on marketplaces to ensure sellers on online marketplaces do not pay more than they owe and limit the amount of personal information they’re required to provide online. U.S. Senator Maggie Hassan will be introducing companion legislation in the Senate.
Millions of Americans sell used goods online to supplement their income, clean out their closets or give their goods a second life. Too many Americans struggle to make ends meet, and for many, selling used personal goods online has been a much-needed economic lifeline. Next year, many of those people will receive tax forms they’ve never seen before for transactions like selling a bike or used clothes, because the threshold for receiving a 1099-K was lowered from $20,000 and 200 transactions to $600.
This change does not take into account the millions of individuals selling used or pre-owned items for less than the original purchase price who won’t be receiving taxable income. Yet these transactions will now trigger IRS reporting requirements, yielding confusion and ultimately overreporting of income, which could result in mistaken overpayment or ineligibility for certain tax benefits.
“Selling online has empowered Granite Staters to supplement their income and find a second life for used goods by connecting with buyers online,” said Congressman Pappas. “Raising the reporting threshold will ensure sellers of used goods are not subject to burdensome or confusing reporting requirements, which could result in overpayment as well as ineligibility for certain tax benefits.”
“Online marketplaces have helped millions of Americans pay their bills and upcycle their used goods, but this reporting requirement creates needless confusion and risks burdening Americans with taxes they don’t owe,” Senator Hassan said. “We should be focused on streamlining the tax process for individuals and small businesses, and I encourage my colleagues to join me on this commonsense bill.”
In December 2021, Pappas led 15 of his colleagues in a letter to House leadership asking for Congress to raise the threshold for 1099-K reporting for goods sold on marketplaces before the end of the year.
Specifically, the legislation would: raise the reporting threshold from $600 to $5,000 and require entities to issue a plain-language description of the taxability of income reported on Form 1099-K to reduce confusion among online sellers.
Sellers from New Hampshire who could be impacted shared why revising this threshold is important for them:
“Because of the Covid-19 crisis, I was forced to retire early. I now spend my days cleaning out my house and selling items online to help make ends meet,” said Henry W., a seller from Manchester. “Having to fill out extra forms and doing the extra work to prove that my sales are less than the amount paid for items, will add so much instability to my already precarious financial situation. I receive only a small amount from Social Security monthly, and my online sales help to pay the bills and other necessities that Social Security doesn’t cover. Otherwise, I would not be able to pay my rent.”
“I have a full-time job, so selling online is strictly a way for me to supplement my income. I sell old things around my house whenever I am short on cash. Doing so has also allowed me to begin paying off my student loans which have piled up!” said Matthew L., a seller from Rochester.
“I started buying on eBay over 20 years ago and have very much enjoyed the experience. I did not begin selling items until I retired. I list a lot of old items of mine I no longer need or use, so I am really only listing a small number of items annually. Being a small seller with a limited feedback rating, every dollar that I can acquire through these sales is extremely valuable to me,” said Bob H., a seller from Manchester. “If these requirements reduce my very modest earnings from eBay sales, it could be crippling and make the entire process burdensome.”
“I started selling online 11 years ago when my 4 children were very young. I run a small photography business and selling used clothing online supplements my family income. I’ll be honest, if this tax situation goes through and if it would require me to hire an accountant to do my taxes, I would no longer sell online. I couldn’t afford that additional expense,” said Shelly P., a seller from Hampton. She continued to say that selling online “has helped me to support my family and be available for them during the day should they need me for doctor’s appointments, etc. I don’t sell enough annually to warrant an accountant or complicated tax forms.”