How Will 1099-K Changes Affect Visibility into the Short-Term Rental Market?
In 2008, Airbnb transformed the short-term rental (STR) market by allowing hosts to engage directly with guests seeking short-term lodging. Today, estimates of the global STR market range from $71 billion (USD) to $107 billion.
The STR market poses many challenges to state and local governments. For tax authorities, the rapid growth of an industry that has historically had a culture of tax evasion is concerning.
But a new income reporting requirement may change the game. This year (tax year 2022), 1099-K reporting is set to be completely overhauled. According to our research, the percentage of STR hosts whose income is reported to the IRS will grow from 3.9% to 98.6%.
Why the massive change? Previously, only STR hosts who earn $20,000 across 200 or more transactions received 1099-K forms and had their income reported to the IRS. The new requirement lowers the revenue threshold to $600 and removes the transaction threshold entirely.
At IVIX, we build technology that helps tax authorities gain visibility into the shadow economy. We recently analyzed the state of tax compliance in the United States STR market. In this blog post, we analyze how the new 1099-K requirements will impact the IRS’s visibility into STR income. We also discuss how tax authorities can fully leverage the new 1099-K data.
Who Receives 1099-K Forms for Airbnb?
1099-K forms, which are issued by hosting platforms, report payments received through reportable payment card transactions (such as debit, credit, or stored-value cards) and/or settlement of third-party payment network transactions. Hosting platforms also send 1099-K forms to the IRS.
Under the previous 1099-K requirements, STR hosts received a 1099-K form if they met 2 requirements:
- $20,000 revenue
- 200+ transactions
According to our analysis, only 64% of hosts met the revenue threshold, and only 3.9% of hosts met the transaction threshold. That means that at most, 3.9% of hosts received 1099-K forms.
Starting this year (tax year 2022), 1099-K forms will be issued to any host earning more than $600, with no transaction threshold. That means that 98.6% of hosts will now receive 1099-K forms.
How Can the IRS Leverage 1099-K Data for Compliance?
The 1099-K reporting overhaul has the potential to massively increase visibility into STR revenue. However, similar reporting frameworks have not necessarily led to increased visibility in practice. Gaining access to data is just the first challenge — using it effectively can be even harder.
According to the Treasury Inspector General for Tax Administration and the Government Accountability Office, the reporting framework for assessing the foreign holdings of US account holders (FATCA) has not been as effective as intended. Among many other issues, the IRS has struggled to match data from foreign financial institutions with their own data. Investing in technology up front will enable the IRS to make the most of the new 1099-K program.
Transform STR Tax Compliance with IVIX
Are you interested in improving STR tax compliance in your jurisdiction? Tax authorities around the world are using IVIX to ensure that STR businesses comply with the tax code. To learn how our platform can help you, click here to book a demo.
