A new tax policy that will require users of digital wallet and e- commerce platforms to report small transactions to the tax collection agency has been delayed by one year.
In the wake of bipartisan backlash and an uproar from small business owners, the rule was delayed.
The American Rescue Plan of 2021. which was supposed to take effect this year, has been delayed to give taxpayers a smooth transition period. Many users of services such as Venmo, Cash App, StubHub and Etsy only recently became aware that they would be receiving I.R.S. tax forms, sowing fears of surprise tax bills.
Douglas O'Donnell, the acting I.R.S. commissioner, said in a statement that the I.R.S. and Treasury heard a number of concerns. The I.R.S. will delay the implementation of the changes in order to smooth the transition.
The extra time will help reduce confusion during the upcoming tax filing season and give taxpayers more time to prepare and understand the new reporting requirements.
Daily business updates The latest coverage of business, markets and the economy, sent by email each weekday.Before the rule change, services like Venmo only gave users a snapshot of their income if they had received more than 20 transactions. The forms were supposed to be used to determine how much a taxpayer owes.
The number of people who are likely to be required to pay more taxes has been increased by the lowering of the thresholds.
According to the I.R.S., the old tax reporting rules that had been in place before the new law are still in effect.
The tax measure in the spending package that Congress is set to pass this week was scaled back or reversed by both sides of the aisle.
The Treasury Department, which oversees the I.R.S., has been under pressure to find a solution to the widespread confusion before taxpayers begin receiving the tax forms.
Senator Joe Manchin III, Democrat of West Virginia, urged the I.R.S. to delay the implementation and allow Congress to find a solution to prevent the regulation from impacting small businesses.
Confusion over how the tax code would be changed had created widespread concern in recent weeks and threatened to create another chaotic tax season next year. The I.R.S. is embarking on an $80 billion modernization project, just as taxpayers were bracing for the possibility that their earnings might be overstated.
According to the I.R.S., the law is not intended to track personal transactions such as sharing the cost of a car ride, birthday or holiday gifts, or paying a family member for a household bill. The policy change was defended as an important way to make sure better compliance with the tax code.
The challenge that the Biden administration faces as it tries to crack down on tax evasion and narrow the $7 trillion tax gap is demonstrated by the resistance to the tax change.
The policy of requiring digital wallet users to report small transactions to the I.R.S. hit people working in the "Gig economy" and small side businesses the hardest. An additional $8 billion in tax revenue will be raised by the change.
Consumers and small businesses dodged a bullet with the delay, but more must be done, according to a partner at the law firm.
Ms. Siddiqui said they were looking forward to working with Congress for a fix.
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