A lot more contractors and businesses like yours that receive payments via CashApp, PayPal or Venmo have been bracing for getting a 2022 Form 1099-K for income received from business transactions over third-party payment networks.
That’s because the Form 1099-K reporting threshold requirement for third-party settlement organizations was lowered from $20,000 in aggregate payments from over 200 transactions to $600 regardless of the number of transactions, potentially opening the floodgates on the volume of forms issued.
But now payees – especially gig workers – are breathing a sigh of relief. Originally set to take effect this tax filing season, IRS has delayed the timeline for the lowering of the threshold to January 1, 2024 “to help smooth the transition and ensure clarity for taxpayers, tax professionals and industry.”
In a statement, acting IRS commissioner Doug O’Donnell said, “The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan Act. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”
Third-party settlement organizations won’t be required to report tax year 2022 transactions on Form 1099-K to the IRS or the payee unless they meet the $20,000/200 transactions. Meanwhile, the transition’s described in more detail in IRS Notice 2023-10.
AICPA called on Congress to take cost-of-living levels into consideration and revisit previous recommendations that were made to raise the threshold from $600 to a higher amount.
Vendors may get Form 1099-K by mistake
There’s a chance your Finance team may field a call from a vendor looking to verify payment amounts from your company because they’re looking at a Form 1099-K and trying to separate business payments from personal payments on a third-party app that were erroneously reported as income.
They’ll need a gentle reminder that with the new threshold, it’s going to be important for them to keep separate personal and business accounts for the payment apps they use. Let them know that if they received a 1099-K for money that was sent from a family member or friend, they should reach out to the payment processing company to get that corrected.
IRS is working on updated instructions for taxpayers who may have already received a 1099-K.
Your vendors also need to be aware that the 1099-K reprieve only applies to federal taxes. They may have 1099-K obligations with their states because of certain reporting thresholds.
For example, Maryland, Massachusetts, Vermont, Virginia and Washington DC have the $600 threshold, New Jersey has a $1,000 threshold and in Arkansas it’s $2,500.