IRS delays implementing the 1099-K $600 reporting threshold until 2023, to the relief of tax pros

Tax pros, third-party settlement organizations, e-commerce platforms (including eBay, PayPal, Etsy, CashApp, and Venmo), and individuals and small businesses that use those platforms to sell their products and services celebrated today. The Internal Revenue Service (IRS) announced a delay in the new 1099-K reporting threshold enacted by Congress as part of the American Rescue Plan of 2021 (ARPA).  

As part of the act, the 1099-K reporting threshold was reduced from $20,000 to $600. This change was originally scheduled to take effect in 2022 and would have affected platforms, businesses, and individuals this coming tax season.  

In what is already expected to be a challenging tax season, this is a joyous gift from the IRS in the midst of the Holiday season!   

What this delay in 1099-K reporting means 

As a result of this delay, the platforms and companies referenced above will not be required to report tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the lower – $600 – threshold amount enacted by Congress as part of the ARPA. 

The IRS guidance indicates that calendar year 2022 will be a transition period for implementing the lowered threshold reporting for third-party settlement organizations (TPSOs), including Venmo, PayPal, and CashApp, that would have generated Form 1099-Ks for taxpayers. 

According to acting IRS Commissioner Doug O’Donnell, 

This action was taken “…to help smooth the transition and ensure clarity for taxpayers, tax professionals, and industry. The IRS will delay implementation of the 1099-K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”

Background: what the American Rescue Plan of 2021 changed 

The American Rescue Plan of 2021 changed the reporting threshold for TPSOs. The new threshold for business transactions is $600 per year, changed from the previous threshold of more than 200 transactions per year exceeding an aggregate amount of $20,000.  

Under the law, beginning Jan. 1, 2023, a TPSO is required to report third-party network transactions paid in 2022 with any participating payee exceeding a minimum threshold of $600 in aggregate payments, regardless of the number of transactions.  

TPSOs report these transactions by providing individual payee’s an IRS form 1099-K, payment card, and third-party network transactions. 

Notice 2023-10 delays the new reporting requirements 

Notice 2023-10 delays the reporting of transactions in excess of $600 to transactions that occur after calendar year 2022. The IRS refers to this as a “transition period” that is intended to facilitate an orderly transition for TPSO tax compliance and individual payee compliance with income tax reporting.  

In the case of a third-party network transaction, a participating payee is any person who accepts payment from a third-party settlement organization for a business transaction.” 

The rationale for the Congressional action in 2021 was felt to be necessary to enhance compliance. The IRS noted that tax compliance is higher when amounts are subject to information reporting, like the form 1099-K.  

The agency does acknowledge that “it must be managed carefully to help ensure that 1099-Ks are only issued to taxpayers who should receive them. In addition, it’s important that taxpayers understand what to do as a result of this reporting, and tax preparers and software providers have the information they need to assist taxpayers.”  

Tax professionals, these TPSOs, and others were very concerned about the complexity and confusion this reduction in 1099-K reporting will cause for both the companies and individual taxpayers. 

What is next 

The IRS states that additional details on the delay will be available soon, along with additional information to help taxpayers and the industry.  

“For taxpayers who may have already received a 1099-K due to the statutory changes, the IRS is working rapidly to provide instructions and clarity so that taxpayers understand what to do.” 

The IRS also noted that the existing 1099-K reporting threshold of $20,000 in payments from over 200 transactions will remain in effect.