For the second consecutive year, the IRS has postponed implementation of the $600 reporting threshold for Form 1099-K.

What is Form 1099-K?

Form 1099-K is used to report payments made for goods or services via third party settlement organizations (TPSO). If you own a business that accepts payments via credit, debit, and third-party payment networks like Venmo or PayPal, you are required to report this information from Form 1099-K on your tax return.

Under previous rules, the IRS required each TPSO to send your business a Form 1099-K by January 31^st if you received over $20,000 in gross payments over 200 separate transactions in a calendar year.

What is the delay?

Before the delay, starting in 2022, the threshold was set to decrease to $600, meaning if you received more than $600 per year (no minimum transaction requirement) through third party peer-to-peer payment apps, you would have received the Form 1099-K reporting those payments and the IRS would have received a copy to enable them to match them to what is reported on your tax return.

In December 2022, the IRS stated that 2022 would be a “transition year” for this new requirement, as they were worried that the change would prompt a flood of 1099-Ks to come through the mail as more people would be subject to the requirement. In addition, the IRS was concerned about the complexity in distinguishing between business and non-business transactions for the issuer of the 1099-K Forms.

As of November 21, 2023, 2023 will be treated as another transition year for the requirement.

What you need to know heading into 2024

To give taxpayers more time to get used to the change, the IRS is planning a phase-in threshold for tax year 2024 of $5,000. They are still working to clarify the other elements of the reporting requirements including how best to focus on taxable transactions.

What can you do now to prepare?

First, if you are receiving payments on payment apps that are not business related, such as birthday gifts, sharing the cost of a car ride or a reimbursement for household bills, make sure they are not coded as a purchase in the app when paid. If they are, contact the payment platform to correct the information so it won’t be reported on the 1099-K.

If you receive payments for personal items whether sold at a loss or a gain, make sure to have documentation on the basis so you can offset the income received on the 1099-K.

For business transactions, the best course is always to maintain good records to report all related expenses that should offset the income. As a copy of the 1099-K will be sent to the IRS using lower thresholds, smaller businesses may be on the IRS radar when they haven’t been in the past.

Questions? Contact us.