IRS Announces 1099-K Threshold for 2024

The IRS issued Notice 2024-85, which provides that for calendar year 2024 transactions, third-party settlement organizations (TPSO) will not be required to file Form 1099-K, “Payment Card and Third Party Network Transactions,” to report third-party network transactions unless aggregate payments made to a payee are $5,000 or more. For 2025, the reporting threshold will be $2,500. For 2026 and later years, the threshold will be $600. The notice also provides that the IRS will not impose failure-to-pay and failure-to-deposit penalties for a TPSO’s failure to withhold and pay backup withholding during 2024.

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 more than 200 transactions were made with the payee (pre-ARPA threshold). ARPA reduced the reporting threshold to $600, regardless of the number of transactions involved, for payments made on or after Jan. 1, 2022.

In 2022 and 2023, the IRS delayed application of the ARPA $600 threshold, allowing TPSOs to use the $20,000 and 200 transaction threshold for those years. In 2023, the IRS also announced that it planned on phasing in the $600 threshold by making it $5,000 in 2024.

Notice 2024-85

Notice 2024-85 formalizes the IRS’ announcement that it was planning on a $5,000 TPSO reporting threshold for payments made in 2024.

Crowe observation

Until the release of Notice 2024-85, there was significant uncertainty and concern that the $600 threshold could apply for 2024. Release of the notice provides certainty regarding the thresholds for 2025, 2026, and later years.

Notice 2024-85 also provides that TPSOs that have performed backup withholding for a payee during calendar year 2024 must file a Form 945, “Annual Return of Withheld Federal Income Tax.” They also must file a Form 1099-K with the IRS and furnish a copy to the payee.

Looking ahead

Many taxpayers believe that Congress should increase the $600 threshold, and upcoming tax legislation could be a vehicle for such a change. In the meantime, for 2024, TPSOs are required to report payments, and payees should expect Form 1099-Ks if the $5,000 threshold is satisfied. Taxpayers should consult with their tax advisers to keep abreast of developments in this area.