As much as we hoped everything would be back to normal in 2022, the pandemic is still making life tough for many Coloradans. Personal savings that lasted through the past two years are dwindling, and certain government programs that helped with everyday expenses are set to expire.
Knowing the economic uncertainty that lies ahead, it’s extremely disappointing to see that the federal government is implementing a new tax law which unfairly targets casual sales of used and previously owned items on online marketplaces.
Back in March 2021, the president signed a COVID-19 relief bill called the American Rescue Plan Act of 2021. This law provided financial help for millions of Americans who needed a boost as the pandemic raged throughout the country.
To help pay for that financial assistance, Congress included an often overlooked provision to significantly change the way the IRS treats online sales via third-party platforms such as eBay, Poshmark or Mercari. They decided to drop the threshold to require a tax form for online sales from $20,000 in a single year to only $600!
This means if someone sells a snowboard for $600 for which they originally paid $800, the IRS will require them to figure out a 1099-K form and prove they didn’t make any income from the sale. So selling only a few hundred dollars’ worth of previously owned goods on online marketplaces now results in scrutiny from the IRS and a much more complicated tax return.
Our family has been using eBay for our online reselling business for nearly 10 years. The platform has allowed us to create a thriving business and has also enabled us to mentor folks who are unfamiliar with the online “recommerce” market.
To equip them to use the platforms, we started a Denver Meet-Up group to help local resellers. Through that group, we’ve met scores of people who are benefiting from online sales, but who are not running a business.
The extra dollars made selling used or pre-owned items online is often the difference in making ends meet. Reselling became a lifeline for many people in Denver and throughout Colorado during the pandemic, and it’s those casual sellers who will be hurt most 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 about the change. Starting Jan. 1, online platforms are now required to track these low-dollar sales and eventually issue tax forms when the annual $600 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 eventually sold it for. Some sellers, fearing IRS scrutiny, will feel compelled to report the sale as taxable even if they sell at a loss. Or they’ll be forced to consult tax experts when they normally handle their own returns.
Another relatively unknown aspect of the new law is that the online marketplace platforms will be required to collect full Social Security numbers when a seller hits that $600 threshold. Before this change, casual, non-business sellers only needed to provide the last four digits of their Social Security numbers. Casual sellers should not have to worry about disclosing additional personal information.
The good news is Congress still has time to address this part of the law before it negatively impacts millions of casual online sellers. Restoring the threshold of $20,000 per year for online sales of previously owned goods is a common-sense way to protect Americans from higher taxes, exposing 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 limit a priority in the new year.
Dave and Laurie Bilyeu, of Englewood, are long-time members of the recommerce community.
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