Tax season can be a confusing and stressful time for many, with various forms and reporting requirements to keep track of. One form, the 1099-K, is the subject of a delay by the IRS.
The IRS recently announced the delay of a 2021 law that would require popular third-party payment organizations like PayPal and Venmo to send a Form 1099-K to taxpayers who received more than $600 in a calendar year.
Let’s break down what the Form 1099-K is, why the IRS delayed its reporting requirement and what this means for you as a taxpayer.
What Is Form-1099K?
Form 1099-K is a tax form used to report income received through third-party payment processors like PayPal, Venmo and Ticketmaster.
If you're a small business owner or an independent contractor who receives payments through these platforms, you might be familiar with this form. It helps the IRS keep track of your income and ensures that you're reporting your earnings accurately.
Why the Delay?
The IRS says the delay will help alleviate confusion for taxpayers.
“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,” said IRS Commissioner Danny Werfel. “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.”
If it weren’t for the delay, approximately 44 million Forms 1099-K would have been distributed to taxpayers. The IRS is concerned that many taxpayers wouldn’t have expected to receive a Form 1099-K, and might not even have a tax obligation.
In addition, there’s a need for further clarification and guidance on who should be responsible for reporting. Payment settlement entities, like credit card companies and payment processors, are typically responsible for issuing Form 1099-K. However, there has been uncertainty about how this responsibility should be divided between these entities and the businesses or individuals receiving payments. The delay allows the IRS to provide clearer guidelines.
What Does This Mean for Taxpayers?
If you're a taxpayer who receives income through payment settlement entities, you won’t see any changes in reporting requirements for 2023.
Without the delay, had you sold $600 worth of Taylor Swift tickets on StubHub in 2023, you would have received a 1099-K ― and so would the IRS.
Third-party payment organizations are only required to send Forms 1099-K to taxpayers who received more than $20,000 and had more than 200 transactions in 2023.
What Lies Ahead for Tax Year 2024?
The IRS plans to begin a phased-in threshold of $5,000 for tax year 2024.
This phased-in approach will allow the IRS to address administrative challenges and educate more taxpayers as it eventually enforces the $600 threshold (with no minimum number of transactions) in years beyond 2024.
What to Do Next
The delay means that taxpayers have an additional year to prepare for the new reporting requirement. You can use this time to ensure that your financial records are in order and that you're ready to comply with the regulations when they go into effect.
The IRS is likely to provide more information and guidelines as the implementation date approaches, so stay tuned for updates.
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