As a result of taxpayer confusion, lack of clear guidance, concerns about the existing backlog, and impact on the upcoming filing season, industry and stakeholders urged the IRS to postpone the implementation of the new reporting requirements of the Forms 1099-K. Good news: The IRS listened, and on Friday, December 23, the IRS issued Notice 2023-10 delaying the requirement for electronic payment networks to report transactions over $600 to the IRS on a Form 1099-K, Payment Card and Third Party Network Transactions, until 2024.
- The IRS is delaying lowering the threshold for Form 1099-K reporting by a year. The $20,000 and 200 transactions thresholds remain in place through December 31, 2023.
- The rules for reporting income are not changing. Anybody receiving taxable income paid through third-party networks must still track and report their taxable income.
Why does this matter for taxpayers?
A Form 1099-K is an information form typically provided to freelancers or small business owners who receive payments of income from a client via a third-party payment system (e.g., Venmo, PayPal, or Cash App) and it is often considered self-employment income. However, with the convenience of Venmo, PayPal, or Cash App, many individuals pay personal expenses as well as payments associated with goods and services with these apps.
The American Rescue Plan Act of 2021 (P.L. 117-2, 3/11/21) lowered the filing threshold for Form 1099-K by third-party settlement organizations (TPSO). Since first enacted in 2008, IRC §6050W had a de minimis exception for third-party settlement organizations (such as PayPal) where they only had to issue a 1099-K to the IRS and customer if they processed over $20,000 of payments AND over 200 transactions for the customer for the year. Starting for 2022, ARPA lowered this to only except filing 1099-K if payments processed were $600 or less. But it also specified that the filing was only if the payments were processed for the sale of goods or services.
Since that change, there were concerns raised about lots more Forms1099-K to be received for 2022. But, I argue that is a good result because data has shown for decades that income tax reporting is better when the taxpayer receives an information return (such as a W-2 for wages), and better yet if there is withholding (no withholding for 1099-K unless backup withholding applies). But, some of the 1099-Ks would also be for selling household/personal use items at a loss. That loss is not allowed, so what does one do with the 1099-K to prevent IRS from sending a CP-2000 notice saying the recipient owes more taxes? I think this is the reason there was a high filing thresholds from the start of IRC §6050W for third party settlement organizations. The main reporting under §6050W is for the gross amount of credit and debit cards processed and such cards generally are only accepted by merchants.