Illinois Enacts Form 1099-K Reporting Requirements

Wendy Walker
December 10, 2019

For the first time in state history, the Illinois state legislature has enacted form 1099-K reporting requirements as part of the FY20 Budget Implementation Act.  

This change is a new direct state reporting requirement for payers of income made to Illinois residents.

  • For 2019 reporting, Illinois requires form 1099-K reporting to be submitted to them directly, following the federal thresholds for reporting. 
  • For 2020 reporting, Illinois requires form 1099-K reporting to be submitted to them directly, when over$1,000 has been paid over at least 4 transactions.

About Form 1099-K

Form 1099-K reporting is used by credit card processors and third party processors to report the gross amounts of goods and services transacting between buyers and sellers.

When section 6050W was enacted to require the reporting of form 1099-K, third party processors, also known as Third-Party Settlement Organizations (TPSOs) were provided significant reporting relief because form 1099 was only required when the aggregate of payments made to a single recipient was at least $20k. And those amounts had to be paid over 200 or more transactions in a calendar year. Credit card processors, on the other hand, were not afforded the same reprieve and reported on all amounts transacted.

Since then, electronic transactions have significantly increased. No longer are consumers limited to buying goods and services on eBay and paying through PayPal. Now, we can buy services from Uber, or freelance services from Upwork and pay for them through an app on our mobile devices. The tremendous increase in electronic platforms transacting taxable income coupled with the threshold and transaction limits for form 1099-K reporting has translated into a large number of taxpayers not receiving form 1099-K according to a report released earlier this year by the Treasury Inspector General for Tax Administration (TIGTA).The IRS tax gap studies indicate that 63 percent of income is misreported when third parties do not provide a form 1099 to the IRS. So, when applying that figure to the underreported amounts from just the payers analyzed in the report, TIGTA estimated it could have been $3.7 billion of misreported income. 

Illinois & Others Change 1099-K Reporting Requirements

A number of states enacted or are contemplating legislation to reduce the threshold and transaction limits for form 1099-K reporting by third party processors.

  • Vermont eliminated the transaction threshold altogether and reduced the reporting threshold to align with form 1099-MISC at $600. The state estimated that they could bring in an additional $1.5M in revenue as a result of the change.
  • Massachusetts enacted an identical bill, estimating an additional $20M in revenue.
  • New Jersey requires the form to be reported at a $1k threshold with no transaction limits. 
  • Arkansas requires the form to be reported at a $2,500 threshold and no transaction limits.
  • Pennsylvania introduced a bill to reduce the threshold to $5k and eliminate the transaction limit altogether.
  • Washington DC, updated their list of 1099 forms that needed to be reported at a $600 threshold to include the K.
  • California proposed AB 1791 which would eliminate the transaction threshold and require 1099-K reporting at a $600 threshold.

States Aren’t the Only Ones with a Threshold Problem

As mentioned previously, TIGTA released a report earlier this year. While the scope of the audit was intended to focus on compliance with self-employment taxes, TIGTA quickly realized that the threshold and transaction limits for form 1099-K reporting between payers who classify as TPSOs versus payers who classify as Payment Settlement Entities was a significant contributor to the overall tax gap.

One of the eleven findings in the report was a recommendation to the IRS to “work with the Treasury Office of Tax Policy to pursue regulatory or legislative change relating to the third-party reporting thresholds established in IRC 6050W”. And the IRS agreed. 

In addition to the TIGTA report and other organizations recommending a lower threshold, there have been numerous bills introduced to Congress over the past couple of years that would lower this threshold. Currently, the New Gig Act of 2019, which sits in both the Senate and House, would lower the 1099-K reporting threshold to $1000 with no transaction requirement. 

Take Action

Find out how you can ensure compliance with Sovos 1099 reporting solutions. 

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Wendy Walker

Wendy Walker is the principal of Tax Information Reporting solutions at Sovos. She has more than 15 years of tax operations management and tax compliance experience with emphasis in large financial institutions, having held positions with CTI Technologies (a division of IHS Markit), Zions Bancorporation and JP Morgan Chase. Wendy has served as a member of several prominent industry advisory boards. She graduated with a BS in Process Engineering from Franklin University and earned her MBA from Ohio Dominican University, in Columbus, Ohio.
Share This Post

Asia Pacific EMEA VAT & Fiscal Reporting
January 27, 2020
4 Challenges of the New India E-invoicing Mandate GSPs Can’t Solve

The deadline for the electronic invoicing mandate in India is rapidly approaching, and if multinationals aren’t careful, compliance issues could catch some SAP customers by surprise. On April 1, India will begin enforcing mandatory e-invoicing for all but the smallest businesses in the country, although the Indian tax administration has yet to completely clarify all […]

ShipCompliant United States
January 24, 2020
6 Highlights from the 2020 Direct-to-Consumer Wine Shipping Report

This January, Sovos ShipCompliant released the 2020 Direct-to-Consumer (DtC) Wine Shipping Report with our partner, Wines Vines Analytics. The year 2020 marks the 10th annual DtC report, which features exclusive data and insights on the state of the industry not tracked or reported on anywhere else. With wine shipments to consumers reaching a record $3.2 […]

EMEA VAT & Fiscal Reporting
January 23, 2020
Romania Cancels VAT Split Payment Mechanism Effective 1 February 2020

Controls to close the VAT gap and combat VAT fraud The VAT gap for Europe remains around €137 billion every year, according to the latest report from the European Commission. This represents a loss of 11.2% of the expected VAT revenue for the region. The largest gaps were in Romania at 37.89%, Greece 33.6%, and […]

LATAM Mexico VAT & Fiscal Reporting
January 22, 2020
Hidden USMCA Compliance Pitfalls for American Companies in Mexico

As part of the recently updated “new NAFTA,” or USMCA, Mexico is enticing companies to move operations into its maquiladora zone of factories along the US border. Major benefits of relocation include exemptions from value-added tax (VAT) and other taxes for qualifying manufacturers, along with a VAT rate reduced by half applied to local transactions […]

Asia Pacific Tax Compliance VAT & Fiscal Reporting
January 21, 2020
China: Draft VAT Law Review

The Ministry of Finance and the State Taxation Administration are pressing ahead with China’s VAT reform having issued a Consultation Draft of the VAT law of the People’s Republic of China on 27 November 2019.  It called for feedback from the public and other interested stakeholders. This draft law aims to consolidate the reforms and […]