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The IRS is delaying a new plan that would have subjected Americans’ electronic payments on apps such as PayPal and Venmo to new scrutiny, bowing to intense pressure from consumers and Congress.

The rule would have required companies to file a form showing total payments of $600 or more for taxable transactions. With the delay, the old threshold for reporting — at least 200 transactions and $20,000 in total payments — remains in effect for the tax year 2022.

This year will now be a “transition period” so consumers and companies can figure things out, said acting IRS Commissioner Doug O’Donnell.

“To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes. 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,” he said when announcing the delay on Friday.

Democrats had tucked the $600 reporting requirement in their coronavirus stimulus plan last year, figuring it would help the IRS go after people who were using cash apps to hide income.

But people had worried that the companies wouldn’t be able to sort out taxable sales from other transactions such as reimbursing roommates for rent or friends sharing the cost of a meal.

The IRS echoed those worries in its announcement Friday, saying that while it valued the lower reporting requirements as a tool to get Americans to pay what they owe, “it must be managed carefully to help ensure that 1099-Ks are only issued to taxpayers who should receive them.”

As envisioned, PayPal, Venmo, CashApp and other similar payment facilitators, known as third-party settlement organizations, were supposed to provide users with the Form 1099-K for transactions throughout 2022.

Under the new guidance provided on Friday, only transactions made in 2023 will be subject to the new reporting requirement, the IRS said.

Officials acknowledged that some taxpayers may have already received forms from companies. The IRS said it will soon issue guidance on those situations.

Some lawmakers on Capitol Hill have said they want to revisit the issue and cancel the $600 changes.

Sen. Joe Manchin III, West Virginia Democrat, said the IRS’ delay gives them a window of opportunity.

“This will allow Congress more time to correct this regulation that puts undue burden on our small businesses,” he said. 

The IRS’ about-face comes as the agency prepares to fight other battles.

Republicans poised to take control of the House in January have vowed to undo part of Democrats’ climate change spending bill that pumps roughly $80 billion into the tax agency over the next decade.

Like the $600 reporting threshold, the new money was intended to help the IRS collect from Americans what the agency believes it is owed — particularly from among the wealthy.

GOP lawmakers fear the money will make the IRS overbearing, subjecting average taxpayers to intrusive scrutiny.

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