IRS delays implementation of reporting $600 threshold to ease taxpayers’ transition

Getting your Trinity Audio player ready...

The Internal Revenue Service (IRS) has announced a pushback on implementing a new reporting threshold for third-party settlement firms.

Settlement firms like Paypal (NASDAQ: PYPL) and Cash App were expected to report all transactions exceeding $600 in the 2022 tax year. However, the tax watchdog has made a U-turn in its decision, delaying the rule’s coming into effect to ease the industry’s transition.

Acting IRS Commissioner Doug O’Donnell noted that both Treasury and the IRS spotted potential bumps following the implementation of the changes after an in-depth consultation with key industry players. The new reporting rule was provided under the American Rescue Plan of 2021, which lowered the tax reporting thresholds for taxpayers.

“To help smooth the transition and ensure clarity for taxpayers, tax professionals, and industry, the IRS will delay the implementation of the 1099-K changes,” said O’Donnell. “The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”

Experts believe that the “transition period” provided by the delay will allow third-party settlement firms and individuals to be tax compliant under the new rules. There is consensus that the new threshold will encourage tax compliance across the board, especially when the figures are “subject to information reporting.”

The IRS clarified that the rules are not designed to monitor minute individual transactions closely. New reporting requirements are expected to kick in January 2023, but the IRS warns that tax forms should be given to eligible individuals.

The status of broker reporting on digital assets

Since the passage of the new rules, there has been uncertainty over the position of brokers dealing with digital assets. However, the IRS attempted to clear the air by announcing that brokers are not under the obligation to file information regarding holdings of digital assets.

“The Treasury Department and Internal Revenue Service announced today that brokers are not required to report additional information with respect to dispositions of digital assets until final regulations are issued under sections 6045 and 6045A,” read the statement.

Across the board, sweeping changes are coming for the taxation of digital assets, and investors are bracing themselves for them. Portugal is set to impose a new virtual currency tax of 28%, according to a budget draft submitted to the country’s parliament.

South Korea, Nigeria, Ghana, and Kazakhstan are among the countries mulling over the launch of new tax regimes for digital assets in their jurisdictions.

Watch: The BSV Global Blockchain Convention panel, Law & Order: Regulatory Compliance for Blockchain & Digital Assets