If you were looking for something to be thankful for in the convoluted information reporting space these days, the IRS has announced in Notice 2023-74 another delay of the new $600 reporting threshold for Form 1099-K. As a result, 2023 will be another transition year for the new, lowered threshold, and reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023.
Under the American Rescue Plan Act of 2021 (ARP) (P.L. 117-2), third-party settlement organizations (TPSOs), which include popular payment apps like PayPal and Venmo, were required to report payments of more than $600 for the sale of goods and services on a Form 1099-K starting in 2022. Prior to the enactment of the ARP, the reporting requirement applied only to the sale of goods and services involving more than 200 transactions per year totaling over $20,000. The IRS first temporarily delayed the new requirement around this time last year.
Additionally, the IRS has announced it is planning for a $5,000 reporting threshold for tax year 2024 to phase-in the implementation of the $600 reporting threshold. This delay and phased-in approach will reduce the potential confusion caused by the distribution of an estimated 44 million Forms 1099-K sent to many taxpayers who wouldn’t expect one and may not have a tax obligation, according to the IRS. Further, the Service is also looking into updating Form 1040 and related schedules for 2024 that aim to make the reporting process easier for taxpayers.
“We spent many months gathering feedback from third-party groups and others, and it became increasingly clear we need additional time to effectively implement the new reporting requirements,” IRS Commissioner Danny Werfel said. “Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion as we continue to look at changes to the Form 1040. It’s clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area.”
Fact Sheet 2023-27 contains more details about this announcement.
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