IRS Announces Delay in 1099-K Reduced Threshold
The IRS recently announced a delay in reporting thresholds for third-party settlement organizations (TPSOs) set to take effect for the upcoming tax filing season.
As a result of this delay, TPSOs will not be required to report tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the $600 threshold amount enacted as part of the American Rescue Plan of 2021 (ARPA). Under section 9674(a) of the ARPA, the reporting threshold for Form 1099-K, Payment Card and Third-Party Network Transactions, decreased from $20,000 and 200 transactions to $600 for any number of transactions for 2022 taxes. The law is not intended to track personal transactions such as sharing the cost of a car ride or meal, birthday or holiday gifts, or paying a family member or another for a household bill.
As part of the announcement, the IRS released Notice 2023-10 outlining that the calendar year 2022 will be a transition period for implementation of the lowered threshold reporting for TPSOs, including Venmo, PayPal and CashApp, that would have generated Form 1099-Ks for taxpayers. The transition period delays the reporting of transactions in excess of $600 to transactions that occur after calendar year 2022.
In a news release, the IRS said the transition period is intended to facilitate an orderly transition for TPSO tax compliance, as well as individual payee compliance with income tax reporting. A participating payee, in the case of a third-party network transaction, is any person who accepts payment from a TPSO for a business transaction.
The IRS said it is making the adjustment in response to feedback the IRS and Treasury received about the timeline of the implementation of the 1099-K changes.
Following the IRS announcement, the AICPA released a statement expressing gratitude for the reprieve while urging Congress to consider its previous recommendations to raise the threshold. In a recent letter to the Senate Finance Committee and the House Ways and Means Committee, the AICPA recommended that the section 6050W(e) de minimis exception for reporting be cost-of-living adjusted (COLA) using 1954 as the base period for the $600 COLA and voiced its support of the National Taxpayers Union Foundation recommendation that the threshold be raised to “a level sufficient to exempt casual or low-level online activity,” agreeing that $5,000 would constitute significant progress.
More details on the delay will be available in the near future along with additional information to help taxpayers and the industry. For taxpayers who may have already received a 1099-K as a result of the statutory changes, the IRS said it is working rapidly to provide instructions and clarity so taxpayers understand what to do.
The IRS also noted that the existing 1099-K reporting threshold of $20,000 in payments from over 200 transactions will remain in effect.