3 Important Takeaways from a 1099-K Discussion with PYMNTS

Recently, I spoke with the media outlet PYMNTS on the latest 1099-K reporting changes. Just last month, the IRS again announced a delay in enforcement of the new $600 Form 1099-K reporting threshold by third-party settlement organizations (TPSOs) for calendar year 2023. In other words, reporting will not be required by TPSOs unless a payee receives at least $20,000 paid over at least 200 transactions in 2023. In an interesting twist, the IRS also changed the Form 1099-K reporting threshold by TPSOs to $5,000 and no transaction limit for 2024 transactions.

But that’s just scratching the surface on some key issues. Here are important takeaways from our discussion and be sure to check out our entire conversation on the PYMNTS website.

A level playing field

As I explained in my interview, “Form 1099 reporting is done by third parties, and the IRS generally matches that information to income tax returns that taxpayers file — to ensure that they are reporting all of their income and paying their taxes.” With this threshold change for TPSOs, Form 1099-K reporting for online platform transactions are being brought to the same reporting level as if the goods and services payment was made via ACH, cash or check {which would instead require Form 1099-MISC or NEC reporting following a $600 reporting threshold).

The IRS is working to narrow the tax gap. According to the tax scores prepared for the American Rescue Plan Act legislation, there is more than $8 billion in tax revenue that could be captured through the change to the 1099-K reporting threshold. The rapid growth of the online economy and the independent workforce in general (70 million in 2022, according to MBO State of Independence Report), coupled with the high Form 1099-K reporting threshold for online platform transactions, led to the legislative change in reporting thresholds in 2021.

The compliance burden has shifted

A lowered threshold means that the issuer will feel a far greater compliance burden with respect to ensuring that information reported on the 1099-K forms is reported accurately and according to rapidly changing IRS and state tax reporting requirements. More companies must check – and recheck – everything from Social Security data to which states expect 1099-Ks at lower reporting thresholds than the IRS – for the expected surge in individuals who will now be receiving Form 1099-K for the first time.

Invalid TIN data can also lead to subsequent IRS reporting penalties for companies. With increases in IRS enforcement programs, it is going to be more critical than before to validate vendor name/TIN combinations.

1099-K requirements are not static

If there is one thing that is certain, tax reporting requirements are constantly changing, often leaving little time for businesses to adapt.

For example, this latest IRS enforcement delay was announced just weeks after my initial interview with PYMNTS. Form 1099-K reporting requirements can still change, especially since many states have yet to release 2023 information reporting requirements. It’s essential for organizations to ensure that they are in compliance with the latest requirements. Working with the right partner can help.