On November 26, 2024, the IRS released Notice 2024-85 (Revised Timeline Regarding Implementation of Amended Section 6050W(e)). The notice announces transitional relief for Third-Party Settlement Organization (TPSOs) from the 1099-K reporting threshold for tax year 2024 and 2025. For tax year 2024, the IRS will implement a $5,000 reporting threshold for TPSOs, without regard to the number of transactions. For tax year 2025, the threshold will be reduced to $2,500. For tax year 2026 and beyond, the statutory threshold of $600 will be enforced.
Previously, 1099-K reporting obligations for TPSOs arose after making payments of $20,000 or more and 200 or more transactions to a single payee. The American Rescue Plan (2021) reduced the threshold to $600 and eliminated the transaction requirement for tax year 2022 and beyond. Prior to today’s announcement, the IRS delayed implementation of the threshold for tax year 2022 (Notice 2023-10) and tax year 2023 (Notice 2023-74).
Additionally, the IRS announced that Notice 2011-42 is obsolete. Under interim guidance established by Notice 2011-42, TPSOs were not required to backup withhold until the transactional reporting threshold for a payee was reached (200 transactions). As this notice is obsolete, TPSOs must now withhold on all payments subject to backup withholding per IRC 3406, regardless of whether the monetary or transactional thresholds of 6050W are met. TPSOs must obtain a TIN from every payee to avoid backup withholding. The IRS will not assert penalties against TPSOs that failed to withhold and pay backup withholding for 2024, but will assert penalties for TPSOs that fail to do so for 2025.
IR 2024-299 can be found here.
Notice 2024-85 can be found here.
