A Brief Overview of the IRS’s New $600 Rule
The American Rescue Plan Act amended Internal Revenue Code Section 6050W, which previously required ticket-selling platforms to send 1099-K forms if a user received more than $20,000 in revenue and had more than 200 transactions. If a ticketholder resells one or more tickets that result in an aggregate profit of $600 or more, the seller will be issued a 1099-K form and must report these profits on their income tax return. The information on the forms will also be reported by the payment platforms directly to the IRS, making it easier for the IRS to track compliance. Given the substantially lower threshold, ticket marketplaces like StubHub and Ticketmaster will be required to send 1099-K forms to individuals at a much higher volume.
Given concerns over the new rules, the IRS recently announced that it will treat 2023 as a “transition period” and push enforcement of any new thresholds to the 2024 tax year.
Tax Implications of the IRS’s New $600 Rule
There are tax implications due to the new rules that affect people who may not have previously reported such taxes. The IRS is focused on resellers, but the new rules impact common online retail activities, and the reporting requirement is triggered by the sale price, not the seller’s profit. Specifically, sellers will only need to pay taxes if they made a profit—if they sold a ticket for more than they paid for it. If an individual sells tickets at a loss, that loss is not deductible. Sellers may still have to report the loss on their tax return if they receive a 1099-K.
Additional Complications Caused by the New $600 Rule
There are issues beyond just 1099-K form issuance and individual tax implications.
New Reporting Threshold
As stated, the threshold is sales over $600, irrespective of the number of transactions. Previously, ticket-selling platforms were required to send 1099-K forms if a user received more than $20,000 in revenue and had more than 200 transactions.
Affected Platforms
Platforms like Ticketmaster, StubHub, TickPick, Venmo, eBay, and Etsy are all impacted by this regulation. The reporting regime extends beyond ticket resale, including other online retail activities like reselling used or thrifted clothing or making and selling goods. The platforms will be required to send 1099-K forms to individuals at a much higher volume under the $600 rule.
Tax Calculation
Resellers must rely on their own records to determine their profit on ticket sales. Only that profit will be taxable.
Tax Rate
Profits from tickets resold within a year of purchase are subjected to short-term capital gain taxes, which are taxed at the ordinary federal income tax rate (10 percent to 37 percent). State income taxes may also apply.
Profit and Loss Reporting
Profits are taxable. If tickets are sold at a loss, that loss is not deductible. However, resellers may need to report this loss on their tax returns if they receive a 1099-K form.
Ticket Reselling Popularity
The regulation comes during a surge in ticket reselling, especially for high-demand events, like Taylor Swift’s “Eras Tour,” Beyonce concerts, or Lionel Messi games. Casual resellers are now a significant part of the market.
Implementation Year
Initially set to take effect in 2022, the effective date of the revised Section 6050W has since been delayed twice. Per IRS Notice 2023-74 and related news release IR-2023-221, 1099-K form reporting requirements will remain at the original threshold of $20,000 in aggregate payments and 200 transactions for 2023, with the threshold for 2024 set at $5,000. It is yet to be determined whether the $600 threshold will be applicable for the 2025 tax year.
Industry Reaction
Industry groups, like the Coalition for 1099-K Fairness (including StubHub, Airbnb, and eBay), believe the new law is burdensome and confusing, thus lobbying for a higher reporting threshold.
Penalties
While there does not appear to be a specific penalty for failing to report the amounts due on the 1099-K form, there are general penalties for which a taxpayer may be liable. If a taxpayer fails to report amounts found on their Form 1099-K that exceed $5,000 or 10 percent of the total tax due, the taxpayer could be subject to a penalty for the substantial understatement of income tax, which is equal to 20 percent of the understated tax.
Ticket Resellers or Casual Online Retailers Must Be Proactive
With these changes, ticket resellers or casual online retailers should be proactive in understanding the implications and may benefit from seeking financial, tax, or legal advice.
