It's the beginning of another year and many sellers are concerned about recent changes to IRS 1099-K thresholds that may impact their businesses.
Here's the official announcement from eBay:
We wanted to follow up with some additional information about how the new IRS tax reporting laws may affect you in 2022, and to let you know that this change requires us to collect Social Security numbers (SSN) or Individual Tax Identification (ITIN) Numbers from all sellers who sell over a certain threshold.
Starting on January 1, 2022, U.S. tax reporting requirements will require all online marketplaces and businesses like eBay which process payments, to issue a Form 1099-K to sellers who receive $600 or more in gross payments. Previously, only sellers with 200 or more transactions and at least $20,000 in annual sales received a Form 1099-K. The new requirements may impact the 2022 tax return that you will file in 2023.
What’s changing with the new requirement
Starting next month, when your 2022 sales reach $600, you will be asked to provide your full 9-digit Social Security number (SSN) or Individual Tax Identification Number (ITIN) before you can continue to sell on eBay. If you have not previously provided your full 9-digit SSN or ITIN, we’ll alert you in your account, and send you an email requesting this information when you reach the sales threshold.
What the IRS does and doesn’t tax
You should also know that many sales on eBay aren’t taxable, so even if you have $600 or more in sales and we issue you a 1099-K, you won’t necessarily be taxed on those sales because in most cases, you wouldn’t owe any taxes on something you sold for less than what you paid for it. For example, if you bought a bike for $1,000 last year, and then sold it on eBay today for $700, it’s unlikely that you would be subject to income tax because your sale price was less than the price you paid for the item. We encourage you to talk to a tax professional when reviewing your 1099-K to determine whether you have taxable income and how to report amounts listed on your 1099-K.
We’ll continue to keep you updated going into 2022. Look for emails and alerts from us that will help explain what’s changed, and what you may need to do next. In the meantime, you can learn more in our FAQ about Form 1099-K and how they affect you.
However there still seems to be a lot of confusion in the seller community about what exactly the new threshold will mean for small sellers who may not have received 1099-Ks before.
I'll give the obligatory disclaimer that I am not a tax professional and this is not meant as an endorsement, but a seller in the eBay community linked to this video from Not Your Dad's CPA that I think does a great job of giving a simple explanation that applies broadly to sellers across a variety of platforms.
For eBay specifically it's important to note that for Managed Payments, sales tax eBay collects and remits as a marketplace facilitator are not included in the 1099-K amount, but seller collected and remitted sales tax is included.
Additionally, Form 1099-K does not include the sales tax when it is automatically collected and remitted by eBay.
Basically the way it works is money that is paid to the seller is included on the 1099-K, money that is not paid to the seller is not included.
For the purposes of sales tax, that means seller collected tax is included in the 1099-K, because it is paid to the seller who then remits it to the state.
eBay collected sales tax (marketplace facilitator tax) is not included in the 1099-K because eBay collects that money from the buyer then remits it directly to the state - it is never paid to or received by the seller.
When PayPal was processing the payments, the full amount including both seller collected and eBay collected tax was processed and paid directly to the seller, then any eBay collected (marketplace facilitator) tax was deducted from the seller's PayPal account and sent to eBay.
If you transitioned to Managed Payments mid-year, any payment processing done by PayPal will still have the eBay collected tax included in the 1099-K even though payments processed by eBay directly in Managed Payments will not.
Are you concerned about the changes to the 1099-K threshold or is it just business as usual? Any other helpful resources for tax information to share with fellow sellers? Let us know in the comments below!