The article is really poorly researched. They mentioned that Etsy decided “not to cancel the transactions”. What does that even mean? You can’t cancel a transaction where the money has already been taken out or the account and magically expect it to return. Etsy has to push the money back into the account via a refund.
And money refunded is never considered income, so the second part of the article is completely unfounded speculation. Unless Etsy issued 1099s it doesn’t matter how much money they push into the account, it doesn’t mean it will be considered income.
At least with Braintree (which my company uses), you can void a cc transaction any time until it settles at midnight, with the result that the money never actually leaves the account. A preauth of this magnitude could still cause big problems for a day or so, but it’d be better than locking the money away as a credit in a totally different account (which, among other problems, somehow smacks of money laundering).
There is a sort of "cancel" for ACH transactions, and they were talking about both credit cards and ACH withdrawals.
I'd be concerned about the 1099 thing. They've already demonstrated some poor practice in that area, so it's reasonable to raise the issue before they calculate it wrong.
The 1099 panic is just totally and completely uncalled for, there's no reason to think Etsy's systems would erroneously report reimbursements as income on 1099s. After all, my work issues me both paychecks and expense reimbursements and when I get my W-2 at the end of the year only the paychecks are listed as income, it doesn't include the reimbursements.
And even if your 1099 was incorrect, that doesn't mean you'd suddenly owe taxes on the incorrect amount, you'd just report the error to Etsy for them to fix.
And money refunded is never considered income, so the second part of the article is completely unfounded speculation. Unless Etsy issued 1099s it doesn’t matter how much money they push into the account, it doesn’t mean it will be considered income.