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IRS Delays Implementation of Lower Threshold for 1099-K Reporting

The Internal Revenue Service (IRS) has delayed the implementation of the new $600 Form 1099-K reporting threshold for third party settlement organizations (TPSOs), which include payment apps and online marketplaces, for the calendar year 2023.

This decision comes after receiving feedback from taxpayers, tax professionals and payment processors, with the aim of reducing confusion and ensuring a smoother transition, the IRS said in a Tuesday (Nov. 21) press release.

The IRS plans to treat 2023 as an additional transition year, reducing the reporting requirement unless taxpayers receive over $20,000 and have more than 200 transactions, according to the release.

Additionally, the IRS is planning for a threshold of $5,000 for tax year 2024 as part of a phased-in approach to implementing the $600 reporting threshold enacted under the American Rescue Plan (ARP), the release said.

Under the ARP, TPSOs were required to report payments of more than $600 for the sale of goods and services on a Form 1099-K starting in 2022, per the release. However, the complexity in distinguishing between personal transactions and taxable transactions, such as the casual sale of goods and services, led to the IRS temporarily delaying the new requirement last year.

The changes announced on Tuesday are meant to address these concerns and ensure effective implementation, according to the release.

In response to feedback from the tax community, the IRS is also looking to make updates to the Form 1040 and related schedules for tax year 2024, the release said. These updates aim to make the reporting process easier for taxpayers.

However, changes to the Form 1040 series, which is the core tax form for over 150 million taxpayers, are complex and require careful consideration, per the release. Therefore, delaying changes to tax year 2024 allows for additional feedback and ensures that the reporting process is streamlined and user-friendly.

Any implementation delays of the threshold for Form 1099-K will prove fleeting, so payments platforms must be ready to rise to the challenge, Wendy Walker, solutions principal at Sovos, told PYMNTS in an interview posted Tuesday.

Plus, digital asset regulations that are still in the commentary period are still being hammered out, Walker added.

“It’ll just be the next chapter on 1099 reporting,” Walker said.