Avalara Survey Finds Proposed Changes to 1099-K Reporting Threshold Would Have Wide-Reaching Impacts on Marketplace Sellers, Online Marketplaces, and Gig Workers
- New research commissioned by tax automation software company Avalara reveals that 55% of respondents see the proposed 1099-K reporting threshold change as a potential barrier to continuing marketplace selling or gig work.
- 83% of marketplaces are anticipating sellers to drop from their platforms because of 1099-K compliance complexity.
- 90% of marketplaces believe third-party sellers on their platforms are prepared for the proposed 1099-K changes, versus 51% of third-party marketplace sellers.
SEATTLE, WA — NOVEMBER 28, 2023 — Avalara, Inc., a leading provider of cloud-based tax compliance automation for businesses of all sizes, today released findings from a new survey* of marketplace sellers, gig workers, and decision makers at online marketplaces around previously proposed changes to IRS form 1099-K reporting requirements in 2024, including a drop in the reporting threshold from $20,000 to $600. This change would have impacted significantly more marketplace sellers and gig workers. On November 21, the IRS announced a delay in implementing the reduced 1099-K reporting threshold, with plans to phase in a $5,000 threshold for tax year 2024.
The survey found that, as a result of these proposed changes, 83% of marketplaces anticipate sellers to leave their platforms, and a majority (55%) of marketplace sellers and gig workers are reconsidering online selling and on-demand work. The survey also revealed a disconnect in 1099-K readiness, with nearly all (90%) marketplaces queried believing sellers on their platform are prepared for changes, compared to 51% of marketplace sellers reporting readiness to comply with proposed rule changes.
“Our survey data reveals the need for proactive measures on the part of marketplace sellers, on-demand workers, and online marketplaces to determine how best to comply with a revised 1099-K digital payments threshold,” said Scott Peterson, VP, US Tax Policy at Avalara. “Gig workers and sellers anticipating significant impacts from the proposed IRS changes should seek advisory assistance from a bookkeeper or tax/accounting professional around newfound reporting complexity prior to making big decisions. And businesses, bookkeepers and accounting firms can access cloud-based automation solutions that scale with reporting and form preparation and distribution demands associated with a decreased 1099-K threshold.”
Marketplaces and marketplace sellers disagree on readiness for 1099-K changes
Online platforms and their sellers differed on opinions around readiness for the proposed IRS 1099-K threshold change. Of those surveyed, 90% of marketplaces believe that third-party sellers on their platforms are prepared, and a majority (60%) of marketplaces believe that third-party sellers on their platforms are very prepared for proposed changes. In contrast, just over half (51%) of marketplace sellers say they are prepared.
Online sellers, gig workers and marketplaces anticipate material business impacts
As a testament to the perceived impact of the proposed IRS rule change, the survey found a resounding 83% of marketplaces anticipate sellers to leave their platforms as a result of 1099-K compliance issues, and a majority (64%) of marketplace sellers and gig workers are considering alternatives as a result of the proposed IRS requirements and tax implications. And geography matters – sellers and gig economy workers in the Midwest and West (71% and 70%, respectively) are most likely to consider alternatives due to compliance requirements. Those in the South region are least likely (52%).
Notably, a full 55% of marketplace sellers and gig workers surveyed say that the proposed 1099-K rules would impact their decision to continue on-demand work or selling on marketplaces.
Platforms look to automation for 1099-K form delivery
Another significant ramification of the proposed 1099-K changes for businesses is the task of delivering many more of the forms in coming tax years. The General Accountability Office estimates the IRS would receive 44 million 1099-K forms (up from 14 million) following a threshold change. Two thirds (65%) of marketplace platforms plan to deliver 1099-K forms to sellers that meet a new threshold via automated solutions, according to survey results. Just under half (42%) would outsource form delivery to their accounting firm. And 47% of marketplaces would task their internal teams with manually delivering 1099-K forms to sellers that meet a new threshold.
Marketplace sellers look to accounting experts to manage 1099-K compliance
Not surprisingly, tax and accounting professionals will be top of mind for marketplace sellers scrambling to get a handle on the proposed reporting requirements. Nearly half (46%) plan to contact their bookkeeper, tax professional, or accountant to manage the proposed 1099-K rules. Other sellers (40%) plan to either figure out the rules on their own, and an equal number plan to reach out to others in the gig/merchant community for guidance. And just a third (33%) of sellers responded that they’ll look to marketplaces for guidance around the proposed rules. Over half (60%) of marketplaces have already informed sellers about the proposed 1099-K reporting requirements, and 15% have gone further to advise sellers around compliance.
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Marketplaces: The research was conducted by Censuswide, with 106 decision makers over the age 18 in online marketplaces (eBay, Etsy, Amazon, etc.) in the US (job titles: Accountant, Bookkeeper, Vendor manager, Controller) between 10.20.2023 – 11.1.2023. Censuswide abides by and employes members of the Market Research Society, which is based on the ESOMAR principles.
Marketplace sellers and gig economy workers: The research was conducted by Censuswide, with 501 sellers on online marketplaces and gig economy workers (freelancers, contractors, side hustles, etc.) in the US. The research was run between 10.20.2023 –11.1.2023. Censuswide abides by and employes members of the Market Research Society, which is based on the ESOMAR principles.