By now most taxpayers are aware of Form 1099-K, which requires third-party settlement organizations and payment processors (such as Venmo, PayPal, Stripe, etc.) to issue a 1099-K when transactions exceed a certain threshold in payments for the calendar year.
For 2022, the IRS lowered the threshold to $600 in payments before triggering the need for Form 1099-K compliance, only to announce in December 2022 a 12-month delay in the reporting requirement. That reverted back to the threshold of $20,000 or 200 transactions for the 2022 tax year and the new threshold of $600 would then apply to online payments and transactions made after 2022.
Once again, the IRS has announced a delay in the new $600 Form 1099-K reporting threshold requirement for third party payment organizations for tax year 2023. Instead, the IRS is now planning a threshold of $5,000 for 2024 payments and transactions.
These November 2023 updates are based on feedback received from taxpayers, tax professionals, and payment processors over the last year. Now 2023 will be another transition year to implement the new requirements under the American Rescue Plan Act and the previous reporting thresholds will remain in place for 2023. This means that for 2023 and all years prior, payment apps and online marketplaces are only required to send out Forms 1099-K to taxpayers who received over $20,000 and have over 200 transactions. This phase-in approach will allow the IRS more time to review its operational process to better address concerns.
While the reporting threshold remains over $20,000 and 200 transactions for 2023, companies can still issue the form for any amount.
Want to learn more on 1099 compliance and reporting requirements? Watch our latest webinar recording on Acing 1099s: Best practices to meet 1099 requirements and deadlines.
The income is reportable whether you receive the form or not. So if you have a side hustle on Amazon, or have a business reselling tickets, you are required to report it.
You may OR may not receive a Form 1099-K. Given the late change, you may still receive a Form 1099-K this January or February even if the payment processor is not required to report it. So if you receive a form, please keep it. The activity is still being reported to the IRS.
The limits are still coming down, so be prepared. The recent change is only temporary. The IRS will be lowering the threshold over the next few years to get to the $600 limit, so be forewarned.
How to report business activity varies. If you have a side hustle, sell or resell tickets online, or use digital payment systems to receive payment for goods or services you are in business. This needs to be reported. How it is reported can vary so call for help.
Note: Businesses that pay vendors with credit cards or another TPSO should not include those amounts when preparing Form 1099-NEC or 1099-MISC. Only payments made by cash, check, ACH transfer or another bank transfer should be included on Forms 1099-NEC or 1099-MISC.
Alloy Silverstein Accountants and Advisors is here to guide you through the end of the year and throughout tax season. Contact us for a consultation.
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