In a shift from their original plan to implement a $600 reporting threshold for Form 1099-K for third-party settlement organizations, the Internal Revenue Service (IRS) has postponed this change, as outlined in their recent notice.   Third party settlement organization is a fancy term for payment app or online marketplace.  Thus people accepting payment via PayPal or Venmo could be subject to this Form 1099-K reporting.

Why The Change?

The IRS made this decision in response to feedback from taxpayers and tax professionals, aiming to simplify the reporting process and alleviate the potential complications arising from the increased issuance of Forms 1099-K. For 2023, the agency has set a transition period: the updated reporting requirements will trigger only for taxpayers who receive more than $20,000 and engage in over 200 transactions.

It’s important to note that this reporting requirement does not apply to personal transactions like gifts or shared expenses. However, casual sales of goods and services could still trigger a Form 1099-K, even if those sales have no tax liability.

Anticipated Changes for Tax Year 2024

As we look to tax year 2024, the IRS is contemplating a new threshold of $5,000 as a transition towards fully implementing the $600 reporting requirement under the American Rescue Plan. This adjustment would significantly change the reporting landscape for third-party settlement organizations, which would be required to report transactions over $600 on Form 1099-K—a shift from the prior rule targeting sales over $20,000 with more than 200 transactions annually.

As you prepare to navigate the new IRS update and anticipated the changes for 2024, it’s crucial to have expert guidance to ensure compliance and readiness. If you have questions about the 1099-K threshold, reach out to your CRI advisor. Our team is ready to provide the expertise and support necessary to manage these changes effectively and optimize your tax strategy.