Online retailers face a new heavy tax burden
Although we hoped that everything would be back to normal in 2022, the pandemic is still making life difficult for many Coloradans. Personal savings that have lasted for the past two years are dwindling and some government programs that helped with day-to-day expenses are about to expire.
Knowing the economic uncertainty ahead of us, it is extremely disappointing to see the federal government implement a new tax law that unfairly targets casual sales of used and vintage items in online marketplaces.
In March 2021, the President signed a COVID-19 relief bill called the American Rescue Plan Act of 2021. This act provided financial assistance to millions of Americans who needed a boost as the pandemic was raging across the country.
To help pay for this financial assistance, Congress included an oft-overlooked provision to dramatically change how the IRS handles online sales through third-party platforms such as eBay, Poshmark, or Mercari. They decided to lower the threshold to require a tax form for online sales from $20,000 in a single year to just $600!
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This means that if someone sells a snowboard for $600 for which they originally paid $800, the IRS will require them to file a 1099-K form and prove that they received no income from the sale. So, selling goods worth just a few hundred dollars on online marketplaces now entails scrutiny from the IRS and a much more complicated tax return.
Our family has used eBay for our online resale business for almost 10 years. The platform has allowed us to build a thriving business and has also allowed us to mentor people who are unfamiliar with the online “recommerce” market.
To equip them to use the platforms, we created a Denver Meet-Up group to help local dealers. Through this group, we’ve met dozens of people who benefit from online sales, but aren’t running a business.
The extra dollars generated by selling pre-owned or used items online often makes the difference in making ends meet. Resale has become a lifeline for many people in Denver and throughout Colorado during the pandemic, and it’s those casual sellers who will be hit the hardest if Congress doesn’t address this tax change soon.
Even though this law will affect millions of Americans and thousands in Colorado, there is surprisingly little awareness or guidance on change. As of January 1, online platforms are now required to track these low-cost sales and possibly issue tax forms when the $600 annual limit is reached.
And while completing that tax form doesn’t necessarily mean sellers will end up owing more income taxes, few casual sellers keep the detailed records necessary to prove they originally paid more for an item than they actually did. finally sold it. Some sellers, fearing IRS scrutiny, will feel compelled to report the sale as taxable even though they are selling at a loss. Or they will be forced to consult tax experts when they normally handle their own returns.
Another relatively unknown aspect of the new law is that online marketplace platforms will be required to collect full social security numbers when a seller reaches that $600 threshold. Prior to this change, occasional non-commercial sellers only had to provide the last four digits of their social security number. Casual sellers shouldn’t have to worry about disclosing additional personal information.
The good news is that Congress still has time to consider this part of the law before it negatively impacts millions of casual online sellers. Restoring the $20,000 per year threshold for online sales of former-owned goods is a sensible way to protect Americans from higher taxes, disclosure of personal information and unnecessary administrative burdens.
This should be something both parties can agree on, and we urge our Colorado delegation to make changing the boundary a priority in the new year.
Dave and Laurie Bilyeu of Englewood are longtime members of the recommerce community.
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