With the IRS’s choice to sustain the reporting limit for payment app activities into 2024, companies that issue 1099-K tax forms are experiencing a brief relief. However, lower thresholds are forthcoming and are already influencing many taxpayers.
An Avalara survey conducted on November 28th concluded that marketplace sellers and gig workers are re-evaluating online selling and on-demand work as platforms anticipate potential departure of sellers due to these changes.
This survey also spotted a mismatch in 1099-K preparedness. Nearly all marketplaces presumed that their platform sellers were primed for the changes; only half of these sellers reported readiness for the impending IRS rules.
From the 2025 filing season, e-commerce companies that currently report over $20,000 in gross payments and more than 200 transactions will need to send 1099-K forms to taxpayers with over $5,000 of business transactions. This reporting threshold will eventually decrease to $600, as mandated by the 2021 Covid-19 relief bill.
Therefore, anyone using payment applications or online marketplaces to receive payments for selling goods or providing services may receive a 1099-K form once this threshold drops. The new impact will be extensive, from a small landscaping business to an arts and crafts store owner selling through an online marketplace. The survey discovered that 83% of marketplaces anticipate sellers to leave their platform due to 1099-K compliance issues.
However, about 64% of marketplace sellers and gig workers are considering other options due to the newly imposed tax regulations and 1099-K rules. Most importantly, 55% of sellers and gig workers surveyed claimed that their decision to continue on-demand work or selling on marketplaces would be affected by these proposed rules.
There is a large discrepancy between overall readiness and the new changes. The survey found that 90% of marketplaces believe third-party sellers on their platforms are prepared for the 1099-K changes to come, but only half of marketplace sellers say they are prepared for these changes.
In a November 15 report on improving tax enforcement, the General Accountability Office estimated that with the threshold changes, the IRS would receive 44 million 1099-K forms in 2024, an increase of around 30 million compared to the previous year. With this substantial increment in forms, the burden on both taxpayers and tax administrators is difficult if done manually. So, many marketplaces are resorting to automation to avoid non-compliance.
Given the persistent compliance obligations, it is essential for all parties—marketplace sellers, on-demand workers, and online marketplaces—to take preemptive measures to determine how to comply with the revised 1099-K digital payments threshold efficiently.