The IRS imposes taxes on Internet sales over $600 per year

Online sellers hoping to acquire anything from baseball and soccer card sets to a valuable old game may have to pay a portion of the proceeds to Uncle Sam if they use a third-party payment platform to collect the proceeds.

“It would be a change for all those hobbyists selling stuff” through a platform like PayPal, said Jeremy Vergrave, owner of Pop Culture Connection in downtown Greensburg.

Those who might complain about the Internal Revenue Service’s new reporting requirements could blame it on the government’s desire to collect unreported income. The IRS rule requires third-party payers — such as PayPal and Venmo — to report the money they send to people to purchase goods and services if an individual’s sales exceed $600 per year.

The new law was included in the massive US bailout that Congress passed last year while providing the nation with financial relief during the COVID pandemic.

“That means anyone out there, whether you sell something for $600 or $600,000, will pay taxes,” said Vergrave, who ran the company that sells games and classic games for 15 years.

Bob Eisel, co-owner of D and E Collectibles on Main Street in Sharpsburg with Matt Dugan, agrees that the new tax rule will have no impact on how income is reported compared to previous years.

“A person who sells (collectibles) outside their basement” will feel the impact of the revised tax law, said Eisel, who has been in business for nine years.

A PayPal spokesperson did not respond to a request for comment.

Last fall, the US Treasury estimated the “tax gap” – the difference between taxes due and taxes collected – at about $600 billion annually. That would accumulate to about $7 trillion in lost tax revenue over the next decade, according to Natasha Sarin, deputy assistant secretary of state for economic policy.

Reporting rules were relaxed somewhat before this year. The IRS didn’t require senders of money to report income sent to someone’s bank account unless they collected more than 200 business transactions totaling more than $20,000 in one year.

“We can do that (200 transactions) in four days,” Eisel said of previous IRS reporting standards.

Eisel said D and E Collectibles do a healthy online business, as well as customers who come to their traditional store in Sharpsburg.

“The (popular culture) market is very good,” he said, noting that their customers are between 30 and 50 years old.

After that, the government may tax income from garage sales, Vergrave joked.

Applying stricter rules to income from Internet sales “is the right thing to do. They make money,” said Eric Bononi, an attorney and certified public accountant in Greensburg.

“It was generating a lot of work. There is a lot of confusion,” Bononi said.

Given the current IRS backlog and months-long response times, Anthony Rossi, a comprehensive chartered accountant in New Kensington, expects “some problems due to this expansion of reporting.”

For those who buy something like clothes at a yard sale and then sell them online for a profit, that’s reportable income — whether they’re paid with cash, check or the merchant’s services, Rossi said. He said they should document the costs and expenses associated with these revenues now.

Selling personal items at a loss is not taxed, as is receiving gifts and compensation from friends and family. “This could be a problem if the IRS matches 1099-Ks payment reporting forms with tax returns,” Rossi said. “I can see some back and forth with the IRS on these kinds of transactions.”

Rossi said he hopes the 2022 tax forms will include a line for reporting untaxed amounts “to avoid this potential matching nightmare.”

If the federal government wanted taxes from these sales, the state likely wouldn’t be far behind. Rossi said the state will want to make sure these businesses are registered to collect and report sales tax if they sell taxable products. He added that municipalities enjoying commercial concessions and commercial taxes could then apply to tax those revenues.