The Internal Revenue Service (IRS) has delayed implementing a lower threshold for the 1099-K form.
In a Friday (Dec. 23) press release, the agency said that the lower $600 threshold amount at which third-party settlement organizations would have been required to report the tax year 2022 transactions on a Form 1099-K had been delayed.
“The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan,” Acting IRS Commissioner Doug O’Donnell said in the release. “To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-k changes.”
The new threshold for business transactions of $600 per year, regardless of the number of transactions, is lower than the previous threshold, which was more than 200 transactions per year, exceeding an aggregate amount of $20,000.
With the delay, that lower threshold now applies to transactions that occur after the calendar year 2022; it will apply to transactions beginning Jan. 1, 2023, according to the press release.
The existing reporting threshold remains in effect for the calendar year 2022, the release said.
The IRS said that the delay would help ensure that 1099-K forms are issued only to those who should receive them and that tax preparers and software providers have the information they need, per the release.
“The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements,” O’Donnell said in the release.
Lawmakers had lowered the threshold to boost tax compliance and tackle the problem of unreported business incomes, the Wall Street Journal reported Friday.
Taxpayers are more likely to report their income when they know that another party is reporting it too, and the lower threshold is expected to deliver another $8.4 billion over a decade, according to the report.
The one-year delay comes as a relief to users of eCommerce platforms like eBay, Etsy and Airbnb, as platform sellers, taxpayers and tax preparers won’t have to deal with the additional 1099-K forms for another year, the report said.
The change will also affect those who use services like PayPal, Venmo or Square to conduct business. These payment app providers will need to start reporting customers’ business transactions — that is, payments for goods or services — at the lower threshold, CNN reported in November 2021.