The Internal Revenue Service (IRS) has announced a delay in the new $600 Form 1099-K reporting threshold for third-party settlement organizations for calendar year 2023. The decision, released in Notice 2023-74, comes in response to feedback from taxpayers, tax professionals, and payment processors.
To reduce potential confusion caused by an estimated 44 million Forms 1099-K being sent to taxpayers, many of whom may not have a tax obligation, the IRS will treat 2023 as a transitional year. As such, reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions this year.
Considering the complexity of the new provision and the large number of individual taxpayers affected, the IRS plans a threshold of $5,000 for tax year 2024. This is part of a phased approach to implement the $600 reporting threshold enacted under the American Rescue Plan (ARP).
The IRS also aims to simplify the reporting process for taxpayers by updating Form 1040 and related schedules for 2024. However, changes to the Form 1040 series, the core tax form for over 150 million taxpayers, are complex and take time. Therefore, the IRS has chosen to delay changes until tax year 2024, allowing for additional feedback.
Under the ARP, third-party settlement organizations, including popular payment apps and online marketplaces, were required to report payments exceeding $600 for the sale of goods and services on a Form 1099-K starting in 2022. Before the ARP, this requirement applied only to sales of goods and services involving more than 200 transactions per year totaling over $20,000.
Personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member for a household bill are not taxable and should not be reported on Form 1099-K. However, the casual sale of goods and services, including selling used personal items, could generate a Form 1099-K for many people, even if the seller has no tax liability from those sales.
This complexity factored into the IRS’s decision to delay the reporting requirements for an additional year and plan for a threshold of $5,000 for 2024. The IRS invites feedback on the $5,000 threshold for tax year 2024 and other elements of the reporting requirement, including how best to focus reporting on taxable transactions.
The IRS believes that carefully managed expansion of information reporting, resulting from changes in thresholds for Form 1099-K, is crucial as it increases tax compliance and can reduce the burden on taxpayers seeking to follow the law. It is essential that Forms 1099-K are issued only to taxpayers who should receive them and that taxpayers understand what to do as a result of this reporting.
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