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IRS Delays Form 1099-K $600 Reporting Threshold until 2023

IRS Delays Form 1099-K $600 Reporting Threshold until 2023

The Internal Revenue Service (IRS) has announced a delay in the reporting thresholds for third-party settlement organizations (TPSOs) that were 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 lower threshold amount of $600, which was enacted as part of the American Rescue Plan of 2021.

In order to smooth the transition and provide clarity for taxpayers, tax professionals, and industry, the IRS will delay the implementation of the changes to the 1099-K reporting requirements.

The additional time will help reduce confusion during the 2023 tax filing season and give taxpayers more time to understand the new reporting requirements.

Under the American Rescue Plan of 2021, the reporting threshold for TPSOs was changed from more than 200 transactions per year exceeding an aggregate amount of $20,000, to $600 per year for business transactions. The law is not intended to track personal transactions such as sharing the cost of a car ride or meal, gift giving, or paying family members or others for household bills.

Beginning January 1, 2023, TPSOs will be required to report third-party network transactions paid in 2022 with any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the number of transactions. These transactions will be reported by providing individual payees with an IRS Form 1099-K, Payment Card and Third-Party Network Transactions.

The transition period, described in Notice 2023-10, will delay the reporting of transactions in excess of $600 to transactions that occur after calendar year 2022. This 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 lowered reporting threshold is significant because tax compliance tends to be higher when amounts are subject to information reporting, such as on the Form 1099-K.

However, it is important for the IRS to carefully manage the implementation of this change to ensure that 1099-Ks are only issued to taxpayers who should receive them, and that taxpayers and tax preparers have the necessary information to understand and comply with the new reporting requirements.

The existing 1099-K reporting threshold of $20,000 in payments from over 200 transactions will remain in effect. The IRS will provide more details on the delay and additional information to help taxpayers and the industry in the near future.

For taxpayers who may have already received a 1099-K as a result of the statutory changes, the IRS is working to provide instructions and clarification.

Ines Zemelman, EA
Founder of TFX