Form 1099-K, “Payment Card and Third-Party Network Transactions,” reports the gross amount paid during the calendar year. The amount reported on Form 1099-K often bears no relation to the amount of income the form recipients are required to report when they file their federal income tax return. Form 1099-K reporting payments made in 2023 are required to be filed in early 2024, and a $600 reporting threshold currently applies to those forms. While the threshold could possibly be raised before 2023 Form 1099-Ks are due, taxpayers should take steps now in case it is not.
Significant penalties and liability for tax might apply for failure to timely comply with Form 1099-K reporting requirements.
Prior to enactment of the American Rescue Plan Act of 2021 (ARPA), reporting by a third-party settlement organization (TPSO), such as a payment application or an online marketplace, was required if the aggregate amount paid to a payee during the calendar year was more than $20,000 and the number of transactions with the payee was more than 200. For payments made on or after Jan. 1, 2022, ARPA reduced the reporting threshold to $600 or more, regardless of the number of transactions involved.
In December 2022, the IRS delayed the implementation of the $600 threshold until 2023. Accordingly, for 2022, a TPSO was required to file a Form 1099-K only if the pre-ARPA threshold was triggered. The delay in implementation of the $600 reporting threshold provided welcome relief for filers, and many hoped that it would give Congress time to raise the reporting threshold. In fact, several bills have been introduced that would raise the Form 1099-K reporting threshold. For example, H.R. 3937 would restore the threshold to its pre-ARPA level, while H.R. 3530 would set the reporting threshold at $5,000.
If Congress doesn’t raise the threshold, many providers of goods and services will receive a Form 1099-K for the first time in 2024. Understanding what the gross amount reported on the form represents could be confusing for these first-time recipients.
Although many in Congress support raising the Form 1099-K reporting threshold, it is not clear whether such legislation has sufficient support to be enacted, especially in light of current events. While the IRS provided relief from the $600 threshold for 2022, it faced criticism and therefore might be unwilling to delay implementation of the $600 threshold again for 2023. Given the uncertainty, taxpayers should determine what steps they would need to take to comply with their 2023 Form 1099-K reporting obligations under a $600 reporting threshold and be ready to implement those steps in time to file Form 1099-Ks in early 2024.
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