Sell on Poshmark, Facebook Marketplace or eBay? You Might Have To Pay More in Taxes
In recent years, resale sites like Poshmark, eBay and Facebook Marketplace have become hugely attractive to buyers looking for good bargains and hard-to-find collectibles. They’re also a seller’s paradise, a way to unload items around the house and make some money, too. But, if you are one of those sellers, here’s a warning: You might owe more in taxes in 2023.
That’s because there’s a revised tax regulation listed in the Biden administration’s American Rescue Plan of 2021 that aims to help fix a tax gap — by making sellers report any sales over $600 done through third-party resale sites on form 1099-K.
It’s a huge shift from a former threshold that only made people report sales of $20,000 and above and for more than 200 transactions, per The Hill. Resale sites make you supply a Social Security number when you sign up for an account and will send the required tax documentation when sales exceed the threshold stated by the government.
The new move is poised to affect a lot of people. Forbes recently published a story declaring that “resale [is] set to be the star of retail in 2022,” estimating that sales will double the next five years, topping $77 billion. Forbes also noted that, in just the U.S., 33 million consumers purchased secondhand clothing goods in 2020, a sentiment perhaps driven by pandemic survivalism.
In the case of Facebook Marketplace alone, business and personal finance hub Renolon found that there are 1.1 billion users as of 2021 — and that Q3 2022 sales are approaching in excess of $28.5 billion. There are also 250 million active “stores” where individuals sell goods. Those are huge figures for the growing community, especially considering Marketplace only launched in 2016.
Resale Platforms Band Together to Fight New Tax Law
The new $600 threshold for tax form 1099-K has become so controversial that resale brands like eBay, Poshmark, Mercari, Reverb and Etsy have banded together to form the Coalition for 1099-K Fairness, according to The Hill.
As the Coalition stated on their website: “Without timely Congressional action, millions of Americans and fledgling micro-businesses will begin receiving 1099-Ks in January 2023, often in instances where there is no tax liability whatsoever, creating significant confusion and administrative challenges.”
In fact, many sellers had no clue these new tax guidelines were even going into effect this year. A Coalition-backed survey conducted in February 2022 found that 47% of re-sellers were not aware of the new, lower threshold. Further, 69% said if it sticks, they’ll sell less or just stop selling altogether.
Even more alarming are the 54% of respondents who mentioned that their plan — if the threshold sticks — would be to discard preowned items, which is a downside pertinent to another advantageous byproduct of the resale market, sustainability. Recycling clothing, home goods and other items saves them from landfills and even cuts down on significant carbon emissions, per Discover Magazine.
Politicians Fight Back Against Tax Threshold
The Hill reported that several federal politicians have taken notice and are introducing bills to help combat the new tax measure. There’s the Cut Red Tape for Online Sales Act, which aims to bring the annual sales threshold to $5,000. The bill is sponsored by a pair of Democrats, Rep. Chris Pappas (D-N.H.) and Sen. Maggie Hassan (D-N.H.).
Republican lawmakers are pushing three bills which would see the original $20,000 annual sales threshold reinstated. Rep. Carol Miller (R-W.Va.), Sen. Bill Hagerty (R-Tenn.) and Sen. Rick Scott (R-Fla.) are advocating for this reinstatement, The Hill detailed.
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