Editor’s note: This blog was updated on November 27, 2023
Update: Since this content was published, the IRS released additional guidance further delaying the implementation of the lowered Form 1099-K changes to the reporting threshold for 2023 returns. Read our recent blog post for additional details about the latest Form 1099-K reporting threshold requirements.
As the 2023 tax season approaches, ensure your first-time Form 1099-K recipients are prepared for reporting. In 2021, as part of the American Rescue Plan Act (ARPA), the Form 1099-K changes was moving the threshold from $20,000 and 200 transactions to just $600 with no transaction minimum. This threshold was set to go into effect for the 2022 reporting season. However, the IRS delayed the implementation by one year. This means for tax year 2023 and beyond, all third-party settlement organizations (TPSOs) must report Form 1099-K when payments total greater than $600 in the calendar year.
This threshold change will impact a variety of TPSOs, including gig economy payers (e.g., Uber, Lyft), platform marketplaces (e.g., Etsy, Facebook), and other companies that facilitate goods and services payments through electronic platforms (e.g., PayPal). A majority of those who receive Form 1099-K for tax year 2023 will be first time recipients. These workers may not be accustomed to or have knowledge of how to accurately report this type of income on their individual income tax return. or have knowledge of how to accurately report this type of income on their individual income tax return.
Here are five tips to ensure your Form 1099-K changes are ready for the 2023 filing season.
Offer pre-season communication for the form 1099-K changes
Communicate with potential 1099-K recipients ahead of the tax season. Proactively reaching out to Form 1099-K recipients can help your team as tax season begins. A sizable percentage of those receiving Form 1099-K in tax year 2023 will be first-time recipients. Ensure early communication with these individuals so their questions are answered before reporting begins. This will help limit the burden on your customer service team and help limit calls, inquiries and resources as tax season begins.
Disclose tax identification inaccuracies
Bulk TIN match recipient tax information with IRS and communicate inaccuracies with potential recipients prior to the season. With the lowered 1099-K threshold, form volumes will likely increase for most companies, which means penalties could also increase if companies are filing more forms with inaccurate information. Companies that file inaccurate name and TIN combinations on 1099 forms are subject to backup withholding notices (“B” notices) and penalty notices (“P” notices) by the IRS. If you expect an increase in form volume, it’s recommended to proactively check TIN combinations with the IRS system (or through Sovos’ Bulk TIN matching process) to identify recipients with inaccurate name and TIN combinations. Once identified, reaching out to the recipient for corrected information will prevent IRS notices and proposed penalties for your organization and prevent putting your recipients into backup withholding on future payments.
Provide mailing inserts for the form 1099-K changes
Make sure that Form 1099-K recipients receive insert communications. Try to limit the stretch of your customer service department during reporting season. Work ahead of the clock by providing insert communications into your 1099-K forms mailed to recipients. This will help lessen the burden on your customer service team and provide your recipients with essential information regarding Form 1099-K and the upcoming filing season.
Provide quality portal communication
Include additional information in a banner, simplifying portal access, especially if using e-statements. There will be many first-time 1099-K recipients in tax year 2023, so be prepared for questions. It can be difficult for recipients to understand their tax forms, especially if they have not received them previously. Include easy-to-find communications in your portal (especially if utilizing e-statements). Your recipients will have a go-to place for their questions, and it can lessen the amount of calls your team receives during tax season.
Include talk tracks for customer service teams
Investing in customer service training, with solidified talk tracks, is one of the most important best practices of companies seeing a significant increase in 1099-K form volume. Be sure your team is ahead of the game for questions, concerns and corrections.
Take Action
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