New IRS tax rule: What is the ‘$600 rule’ and when will it take effect?
The IRS has postponed the implementation of a new tax rule that will affect those who make a little extra money from selling goods or services online.
If you have been picking up a few extra dollars selling goods or services online, it will be a relief to know that the IRS has postponed implementing a new rule that would have required you to report your earnings if they exceed $600 per year.
According to the IRS, the new $600 Form 1099-K reporting threshold for third parties will not take effect in 2023. The tax agency says it will treat this year as an additional period of transition.
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New IRS tax rule: What is the ‘$600 rule’?
The America Rescue Plan requires third party settlement organizations, including popular payment apps and online marketplaces such as Etsy and eBay, to report annual earnings of more than $600 for the sale of goods and services on a Form 1099-K.
For example, if you sell your creations on Etsy or collectibles on eBay and you make more than $600 in one year, these companies will send you a 1099-K form for you to report your earnings to the IRS.
Prior to this new rule, people only needed to report the sale of goods and services involving more than 200 transactions within a year totaling over $20,000.
When will the $600 rule take effect?
The new requirement was supposed to be implemented last year, but the IRS delayed it. Because of the potential confusion involved in distributing an estimated 44 million Forms 1099-K and in the face of efforts to stop the tax change, the IRS has announced that the $600 threshold will take effect in 2025, and those affected will receive their forms in time for filing tax returns in early 2026.
Meanwhile, an interim threshold of $5,000 will be applied for the 2024 tax year, and affected taxpayers will need to fill out a Form 1099-K for the 2025 filing.