IRS delays implementing the 1099-K $600 reporting threshold until 2023, to the relief of tax pros
Tax pros, third-party settlement companies, e-commerce platforms (such as eBay, PayPal, Etsy, CashApp, and Venmo), and individuals and compact organizations that use individuals platforms to offer their items and services celebrated now. The Inner Earnings Support (IRS) declared a delay in the new 1099-K reporting threshold enacted by Congress as aspect of the American Rescue Prepare of 2021 (ARPA).
As part of the act, the 1099-K reporting threshold was lowered from $20,000 to $600. This improve was at first scheduled to take effect in 2022 and would have afflicted platforms, companies, and persons this coming tax season.
In what is now predicted to be a complicated tax season, this is a joyous reward from the IRS in the midst of the Holiday break season!
What this hold off in 1099-K reporting means
As a outcome of this hold off, the platforms and firms referenced above will not be demanded to report tax calendar year 2022 transactions on a Variety 1099-K to the IRS or the payee for the decrease – $600 – threshold volume enacted by Congress as component of the ARPA.
The IRS direction indicates that calendar calendar year 2022 will be a changeover period for implementing the lowered threshold reporting for 3rd-celebration settlement corporations (TPSOs), which include Venmo, PayPal, and CashApp, that would have created Form 1099-Ks for taxpayers.
According to acting IRS Commissioner Doug O’Donnell,
This motion was taken “…to help clean the transition and guarantee clarity for taxpayers, tax professionals, and field. The IRS will hold off implementation of the 1099-K variations. The further time will help decrease confusion during the forthcoming 2023 tax submitting year and present additional time for taxpayers to prepare and recognize the new reporting needs.”
Track record: what the American Rescue System of 2021 changed
The American Rescue Strategy of 2021 modified the reporting threshold for TPSOs. The new threshold for company transactions is $600 per calendar year, changed from the prior threshold of much more than 200 transactions for each yr exceeding an combination sum of $20,000.
Below the legislation, commencing Jan. 1, 2023, a TPSO is expected to report 3rd-celebration community transactions paid out in 2022 with any participating payee exceeding a minimal threshold of $600 in mixture payments, regardless of the number of transactions.
TPSOs report these transactions by supplying unique payee’s an IRS kind 1099-K, payment card, and third-bash network transactions.
Observe 2023-10 delays the new reporting requirements
Recognize 2023-10 delays the reporting of transactions in excess of $600 to transactions that take place just after calendar calendar year 2022. The IRS refers to this as a “transition period” that is meant to aid an orderly transition for TPSO tax compliance and personal payee compliance with revenue tax reporting.
In the case of a 3rd-social gathering network transaction, a collaborating payee is any human being who accepts payment from a 3rd-occasion settlement corporation for a business transaction.”
The rationale for the Congressional action in 2021 was felt to be vital to improve compliance. The IRS noted that tax compliance is higher when amounts are issue to details reporting, like the form 1099-K.
The company does acknowledge that “it will have to be managed diligently to assistance assure that 1099-Ks are only issued to taxpayers who should really obtain them. In addition, it is vital that taxpayers realize what to do as a final result of this reporting, and tax preparers and application vendors have the information and facts they want to assist taxpayers.”
Tax experts, these TPSOs, and other people were very worried about the complexity and confusion this reduction in 1099-K reporting will cause for both the businesses and particular person taxpayers.
What is next
The IRS states that added aspects on the delay will be readily available before long, along with further details to aid taxpayers and the sector.
“For taxpayers who may possibly have presently been given a 1099-K because of to the statutory changes, the IRS is working quickly to give instructions and clarity so that taxpayers recognize what to do.”
The IRS also famous that the existing 1099-K reporting threshold of $20,000 in payments from in excess of 200 transactions will remain in result.