IRS Delays $600 Threshold Reporting Requirements for Form 1099-Ks
By Justin Warren, CPA, Darren Bushey, CPA and Ed Granelli, CPA
The American Rescue Plan Act (ARP) of 2021 amended Internal Revenue Code §6050W(e) to reduce the de minimis threshold for reporting third party settlement organization’s (TPSO) transactions on Form 1099-K from $20,000 to $600 and was set to begin with tax year 2022.
Form 1099-K, Payment Card and Third Party Network Transactions, is a tax form used to report payments received by taxpayers for goods or services during the tax year from credit, debit or stored value cards such as gift cards (payment cards), and TPSOs. TPSOs generally are the payment settlement entity that must report third party network transactions. They typically include payment card companies, payment apps and online marketplaces.
In January 2023, the IRS issued Notice 2023-10 delaying the reduction of the TPSO reporting threshold from tax year 2022 to tax year 2023. On November 21, 2023, the IRS issued Notice 2023-74 further delaying the de minimis reporting threshold to tax year 2024 as a response to feedback from taxpayers, tax professionals and TPSOs who were worried the new reporting requirements would create taxpayer confusion. The further delay is an effort to give the IRS time to implement the new law, respective reporting requirements and to develop a method to distinguish between reportable and nonreportable transactions
For now, the 1099-K reporting requirements for 2023 remain at the pre-ARP levels, with the de minimis threshold being more than 200 transactions per year AND over $20,000 in total. The IRS plans to begin the transition to the $600 de minimis threshold by implementing a temporary $5,000 reporting threshold for tax year 2024. Thus, this new threshold would need to be applied and accounted for related to 2024 tax year transactions and reportable in 2025.
What Is Reportable and What Is Not Reportable?
The way the world today works is that most taxpayers utilize electronic payments via TPSOs, such as Venmo, PayPal, etc. for numerous types of transactions. When the ARP was originally passed in 2021 and taxpayers were made aware of the $600 de minimis threshold, many taxpayers feared that personal transactions (for example, birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill) would be reported annually on Form 1099-K. This, in fact, is NOT the case since these payments 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 like clothing, furniture and other household items for a loss, could generate a Form 1099-K for many people, even if the seller has no tax liability from those sales.
With 2024 right around the corner, taxpayers should be aware of the $5,000 reporting requirements from TPSOs. If taxpayers have receipts in excess of $5,000, they should plan to receive a 1099-K for tax year 2024 early in 2025.
If taxpayers do have any sales of household items, clothing, etc., taxpayers should try to locate receipts, if possible, for these goods, as the original cost basis could help offset or eliminate tax liabilities on sales of these items. If taxpayers do anticipate income from TPSOs in 2024, contact your tax advisor to plan for the tax burden associated with these, whether it is by paying quarterly estimated taxes or putting aside money to pay your tax bill in April 2025.
If you have any questions on 1099-K reporting or other tax issues, please contact your PKF O’Connor Davies client engagement partner or:
Justin Warren, CPA
Darren Bushey, CPA
Ed Granelli, CPA