Form 1099-K reports the gross amount paid during the calendar year by a TPSO in a third-party network transaction. After being delayed for 2022, a lower $600 threshold for filing Form 1099-K was set to begin in the 2024 filing season for 2023 transactions. The $600 threshold would trigger reporting of many more online marketplace and payment application transactions, including nontaxable transactions like payments to friends and family to split a meal or household expenses and gifts. Recent IRS guidance delays implementation of the $600 threshold for 2023 transactions and states that the IRS plans to apply a $5,000 threshold for 2024 transactions.
Background
Prior to enactment of the American Rescue Plan Act of 2021 (ARPA), reporting by a TPSO was required if the aggregate amount paid to a payee during the calendar year was more than $20,000 and there were more than 200 transactions with the payee (pre-ARPA threshold). For payments made on or after Jan. 1, 2022, ARPA reduced the reporting threshold to $600, regardless of the number of transactions involved.
In December 2022, the IRS delayed the implementation of the $600 threshold until 2023. Accordingly, for 2022 transactions, a TPSO was required to file a Form 1099-K only if the pre-ARPA threshold was triggered. Although there are several bills in Congress to raise the $600 threshold, there was significant concern that none would be passed before 2023 Form 1099-Ks are due in early 2024.
Notice 2023-74 and related guidance
Notice 2023-74 extends the transition period for implementation of the $600 reporting threshold to 2023, delaying implementation of the reduced reporting threshold for another year. Accordingly, for 2023, a TPSO will be subject to Form 1099-K reporting if the pre-ARPA threshold is met or if there was backup withholding.
In addition to extending the transition period for the $600 threshold, the IRS announced that it intends to phase in the reduced TPSO reporting threshold by making it $5,000 for 2024 transactions. The IRS also is seeking feedback from the public about how to update the Form 1040, “U.S. Individual Income Tax Return,” to make filing easier for individuals who receive Form 1099-K.
Crowe observation
Updates to Form 1040 could include an easy way for taxpayers to indicate which amounts reported on Form 1099-K are not subject to tax.
Looking ahead
The IRS provided welcome relief by delaying the $600 Form 1099-K reporting threshold for 2023 and publicly announcing plans to apply a $5,000 threshold for 2024. More changes are likely to come as Congress continues to consider raising the threshold and the IRS works to ease the reporting burden on individual taxpayers.
