The IRS recently announced a delay of the new $600 Form 1099-K reporting threshold for third-party settlement organizations (TPSOs) for calendar year 2023. Instead, 2023 will be an additional transition year, with reporting not required unless a taxpayer receives over $20,000 and has more than 200 transactions in 2023.
“We spent many months gathering feedback from third party groups and others, and it became increasingly clear we need additional time to effectively implement the new reporting requirements,” IRS Commissioner Danny Werfel said in a statement. “Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion as we continue to look at changes to the Form 1040. It’s clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area.”
Background on 1099-K reporting changes
The IRS announced in 2022 that 1099-K reporting threshold changes would be delayed until 2023. Returns filed for 2023 and beyond would require TPSOs to file Form 1099-K when the aggregate of payments paid to a payee in the calendar year is $600 and there is no transaction limit. The IRS explained that after receiving feedback from taxpayers, tax professionals and payment processors, it was necessary to reduce confusion.
In addition to the delay, the threshold will be changed to $5,000 for tax year 2024, part of a phase-in plan to implement the new $600 reporting threshold. Updates will also be made to the Form 1040 and related schedules for 2024, further reducing the burden on taxpayers.
We’ve previously discussed the larger implications of 1099-K reporting changes, which will be important to remember, even with this latest reported delay. Additionally, gig economy payers, such as Uber and Lyft, as well as platform marketplaces like Etsy or companies that facilitate goods and services payments through electronic platforms will be impacted by the changes when they take place.
“The IRS will use this additional time to continue carefully crafting a way forward to minimize burden,” Werfel said. “We want to make this as easy as possible for taxpayers. We will work to make the new reporting requirements easier for them, and we’ll work closely with third party groups, tax professionals and others to find the smoothest path to ensure compliance with the law. This is consistent with our Strategic Operating Plan. The IRS is focused on meeting taxpayers where they are and helping them get it right the first time.”
How does this change impact direct state reporting of Form 1099-K?
A majority of states require businesses to report a variety of the 1099 series and W-2 form information for their residents. Some states accept this information via the IRS Combined Federal State Filing Program (CF/SF). However, even states that participate in the program may require direct reporting of some form information.
For 2023 returns, it is important to remember that state reporting requirements can vary from IRS requirements (due dates, thresholds, filing methods, etc.). Meaning, although the IRS has delayed the implementation of the $600 threshold, there are some states that will still require direct reporting following the $600 guideline. In addition, there are several states that require direct reporting of Form 1099-K at lower thresholds than the IRS requirement of $20,000 and 200 transactions.
When it comes to direct state reporting of 1099 series forms, always ensure you know what your requirements are and what thresholds each state requires filing. Do not assume that the IRS CF/SF program will take care of all direct reporting obligations for you.
Reach out to our team for any questions or concerns you have regarding the latest Form 1099-K reporting threshold changes.