How to Prepare Your 1099-K Recipients for the 2022 Reporting Season

This blog was last updated on November 27, 2023

Editor’s note: This blog was updated on November 27, 2023

Update: Since this content was published, the IRS released additional guidance further delaying and making changes to the implementation of the lowered Form 1099-K reporting threshold for 2023 returns. Read our recent blog post for additional details about the latest Form 1099-K reporting threshold requirements. 

When it comes to the 2023 tax reporting season, ensure you are prepped for how Form 1099-K changes may affect your recipients. As part of the American Rescue Plan Act of 2021, the IRS started lowering the threshold for Form 1099-K. Previously, Third-Party Settlement Organizations (TPSOs) were required to report Form 1099-K if payments exceeded $20,000 and those payments were made over (at least) 200 transactions. For tax year 2023, payments exceeding $600 over a single transaction will subject TPSOs to report the form. Though this threshold was initially set to be implemented for 2022 returns, the IRS delayed it until this upcoming reporting year. This change will affect all TPSOs for the 2023 filing year.

This means for tax year 2023, form volumes will likely increase, as well as the number of first-time recipients. A drastic threshold change like this can impact your business in many ways. Last year, Sovos saw a 33% increase in 1099-K Forms filed in 2021 compared to 2020. With continued growth in the gig economy workforce and this threshold change, that number is expected to grow substantially for tax year 2023. These changes will likely bring great call volumes to your customer service teams. Proactively communicating with your 1099-K recipients can help limit the stretch of your customer service team when reporting season begins.

The below templates can help your teams communicate with 1099-K recipients, whether they are first-time recipients or are merely experiencing changes in their 1099-K reporting process.

Pre-season communication for first-time 1099-K recipients

This template can help your first-time 1099-K recipients. Remember that communicating with your payees before their forms are sent in January can limit the questions your customer services teams receive when reporting season begins.

Hi [name],
You are receiving this communication to ensure you are aware of an important tax reporting change that may impact you. The American Rescue Plan Act of 2021 changed the required reporting thresholds for filers of tax Form 1099-K. Prior to tax year 2023, the IRS only required Form 1099-K to be issued to persons with payments totaling $20,000 or more with over 200 transactions. For 2023 returns, persons with payments totaling over $600 (with no transaction limit) will be issued a tax form and will be required to file Form 1099-K on their individual income tax return. This means if you have transactions from [company name] totaling more than $600 for goods and/or services, you will receive a 1099-K form delivered electronically or post-marked by USPS by January 31, 2024 for your 2023 income tax return.

If you have any questions about this change, please reference this link.
https://www.irs.gov/businesses/understanding-your-form-1099-k

Thank You
[Name/Company]

Communication for tax identification inaccuracies

This template can be used to solicit any tax identification inaccuracies after a bulk TIN Check is performed. Mismatched TINs can lead to your business receiving backup withholding notices and penalties.

Hello [name]
You are receiving this communication because you provided [company name] with incorrect tax information. In an effort to get your tax information corrected prior to tax season, you are required to fill out and return the included form. Failing to do so means your future payments from [company name] will be subject to IRS backup withholding at 24%.

If you have any questions regarding backup withholding or penalties, please visit the follow link
https://www.irs.gov/businesses/small-businesses-self-employed/backup-withholding
If you would like to contact us for legitimacy of this request, please reach us at: [contact information]

Thank You
[Name/Company]

Communication for mailing insert

This template can be used when sending out your Form 1099-Ks for tax year 2023. First-time Form 1099-K recipients will likely have questions. Providing a communication with the form (either electronically or mailed) can help limit and/or simplify questions that your customer service teams will have to answer.

Hello [name]
Inside this envelope is your Form 1099-K for tax year 2023 from [Company]. You are receiving this form because you had payments for goods and/or services that totaled over $600 in the 2022 calendar year. Regulations have changed for tax year 2023 for Form 1099-K. In tax year 2021 and prior, the threshold limit was a minimum of $20,000 and at least 200 transactions. As part of the 2021 American Rescue Plan Act (ARPA), IRS regulations now require persons with transactions totaling over $600 with no transaction minimum to file Form 1099-K. If this is your first time receiving this form, please note: you are required to report Form 1099-K on your individual income tax return for tax year 2023.

If you have additional questions regarding your Form 1099-K, please follow this link https://www.irs.gov/payments/form-1099-k-frequently-asked-questions-individuals

If you would like to contact us for legitimacy of this request, please reach us at: [contact information]

Thank You
[Name/Company]

Simplify the tax information reporting process

With many new or additional IRS reporting requirements being implemented for the 2023 reporting season, you may be wondering if your current 1099 filing process is feasible for your business’ needs. With large changes to the 1099-K reporting threshold, your business will likely have greater form volumes than in previous years. With ever-changing regulations, having a tax information reporting solution you can trust is important. Having the right solution can mean giving time back to your customer services teams, AP members, IT department and more.