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IRS Delays Form 1099-K Reporting Threshold for Third Party Platform Payments

IRS Delays Form 1099-K Reporting Threshold for Third Party Platform Payments

The IRS has released Notice 2023-74, which announced a delay of a new $600 Form 1099-K reporting threshold for third-party settlement organizations (TPSOs) for the 2023 calendar year. After considering feedback from taxpayers, tax professionals and payment processors, the IRS decided to treat 2023 as an additional transition year to reduce taxpayer confusion.

Due to the complexity of the new provision, the IRS is planning for a threshold of $5,000 for tax year 2024 as part of a phase-in to implement the $600 reporting threshold enacted under the American Rescue Plan. This will give the impacted individual taxpayers and stakeholders enough lead time and certainty regarding the new provision.

What Does This Mean for Taxpayers and TPSOs?

A TPSO is defined as a central organization that has the contractual obligation to make payments to participating payees in a third-party network. Some examples of these well-known organizations would be Venmo, Cash App, Zelle, Etsy and PayPal. Currently, the IRS requires TPSOs to send out Form 1099-K to taxpayers when certain payment transactions meet gross payments that exceed $20,000 and when more than 200 transactions are completed within the year. The new law will require taxpayers to receive Form 1099-K for any payments of goods and services (used personal items like clothing, furniture and other household items) over $600, regardless of the number of transactions. This means that more taxpayers will receive the forms.

Reporting requirements do not apply and payments are not taxable for the following:

  • Birthday gifts
  • Holiday gifts
  • Sharing the cost of a car ride or meal
  • Paying a family member or another for a household bill

Future Filing Seasons

The IRS plans to use this additional time to carefully craft a way forward to minimize the burden for taxpayers with new reporting requirements. They intend to work closely with third-party groups, tax professionals and others to find the smoothest path to ensure compliance with the law. The IRS will continue to provide information to taxpayers on this matter on the page “Understanding your Form 1099-K” at IRS.gov/1099k.

If you have any questions on the reporting threshold or Form 1099-K, please contact your Brown Plus advisor.

Posted In: Business Tax Services | Individual Tax Services | Insights

About the Author - Sherry Cracium-Bolin, CPA

Sherry is a Tax Principal and Shareholder of Brown Plus. Having over 20 years of progressive public accounting experience, Sherry assists small and mid-sized businesses through tax planning, management advisory services and compliance services. She also specializes in tax planning and compliance for individuals, estates and trusts.

Sherry received her Bachelor of Science degree in Accounting from York College of Pennsylvania.

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