Lower Form 1099-K threshold delayed again
The IRS again delayed the effective date of the $600 threshold for Form 1099-K reporting for third-party settlement organizations and will treat 2023 as another transition year, the Service said Tuesday in Notice 2023-74.
When the IRS does start to implement the new threshold, enacted by the American Rescue Plan Act (ARPA) of 2021, P.L. 117-2, it is planning to phase it in, starting with a $5,000 reporting threshold for tax year 2024.
The IRS estimated that it would receive 44 million Forms 1099-K, Payment Card and Third Party Network Transactions, under the $600 threshold, almost three times the 14 million that it now receives.
Until ARPA was enacted, third-party settlement organizations were allowed a de minimis exception to filing Form 1099-K with respect to payees with 200 or fewer such transactions during the calendar year with an aggregate gross amount of $20,000 or less. ARPA amended this de minimis amount to $600, with no minimum number of transactions, effective for calendar years beginning after Dec. 31, 2021.
In December 2022, the IRS delayed that effective date by a year. And for 2023, reporting again will not be required unless the taxpayer receives over $20,000 and has over 200 transactions in 2023.
Third-party settlement organizations generally include banks and other organizations that process credit card transactions on behalf of a merchant and make an interbank transfer of funds to the merchant from a customer.
“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 in a news release. “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.”
The complexity in distinguishing between transactions that require a Form 1099-K and those that do not was a factor in the IRS’s decision to delay the reporting requirement change and to phase in the implementation.
The lower threshold has brought concern from several organizations, including the AICPA. In letters to Congress, the AICPA argued for an increased threshold of $5,000 or more, saying the $600 threshold “will create confusion for the many taxpayers who will have to report each sale or transaction independent of others to correctly calculate gain or loss.”
The IRS said Tuesday that it 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 will use this additional time to continue carefully crafting a way forward to minimize burden,” Werfel said. “We want to make this as easy as possible for taxpayers. We will work to make the new reporting requirements easier for them, and we’ll work closely with third-party groups, tax professionals, and others to find the smoothest path to ensure compliance with the law.”
The IRS says it will continue to provide information at IRS.gov/1099k. Fact Sheet 2023-27 contains more details about the announcement.
Originally published in The Tax Advisor November 21, 2023 By Martha Waggoner