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Today the IRS announced another delay in reporting thresholds for third-party settlement organizations (TPSOs) set to take effect for the upcoming tax filing season. As a result of this delay the TPSOs will not be required to report tax year 2023 transactions on a Form 1099-K to the IRS or the payee for the lower, over $600 threshold amount enacted as part of the American Rescue Plan of 2021. Well known third-party settlement organizations (TPSOs) include Venmo and PayPal.
Per the IRS, this means that for tax year 2023 the existing 1099-K reporting threshold of the aggregate of more than $20,000 in payments from over 200 transactions will remain in effect.
The IRS released guidance today outlining that calendar year 2023 will continue to be a transition period for implementation of the lowered threshold reporting for third-party settlement organizations (TPSOs) that would have generated Form 1099-Ks for taxpayers. The IRS is currently planning for a threshold of $5,000 for tax year 2024 (the taxes you file in 2025) as part of the phase in to implement the lower over $600 threshold enacted under the American Rescue Plan.
The American Rescue Plan of 2021 changed third party payment processors reporting requirements to include payments processed exceeding $600, which is down considerably from the original more than 200 transactions per year and exceeding an aggregate amount of $20,000 reporting requirement. This meant you would receive a Form 1099-K for payments processed for goods and services that exceed $600. The law is not intended to track personal transactions such as sharing the cost of a car ride or meal, birthday or holiday gifts, or paying a family member or another for a household bill. TPSOs report these transactions by providing individual payee’s an IRS Form 1099-K, Payment Card and Third-Party Network Transactions.
The transition period announced today delays the reporting of transactions in excess of $600 to transactions that occur after calendar year 2022 and processors will issue Form 1099-K to taxpayers who have an aggregate of more than $20,000 in payments from over 200 transactions processed in tax year 2023 (the taxes you file in 2024). The transition period is intended to facilitate an orderly transition for TPSO tax compliance, as well as individual payee compliance with income tax reporting. A participating payee, in the case of a third-party network transaction, is any person who accepts payment from a third-party settlement organization for a business transaction.
Additional details on the delay will be available in the near future along with additional information to help taxpayers and the industry. For taxpayers who may have already received a 1099-K as a result of the statutory changes, the IRS is working rapidly to provide instructions and clarity so that taxpayers understand what to do. Check back with the TurboTax blog for more information.
If you are a creator, influencer, rideshare driver, work a side gig or other self-employed business and you accept credit, debit, or prepaid cards you may receive Form 1099-K, reporting self-employment payments processed by the third party if you have aggregate payments exceeding $20,000 and more than 200 transactions.
If you are an online seller selling on platforms like Ebay, Airbnb, Etsy, and VRBO with sales at the aggregate of more than $20,000 and more than 200 transactions you could also receive a form 1099-K even if you do occasional sales and consider it a hobby.
One thing to remember is if you are self-employed, you are always supposed to claim your self-employed income regardless of the amount and if your net income is $400 or more you are supposed to file a tax return reporting your self-employment income, since you need to pay self-employment taxes. Don’t worry about paying taxes on the entire amount reported on Form 1099-K. You can claim your expenses directly related to your business, lowering your income reported on Form 1099-K.
TurboTax will be here to educate and guide taxpayers on what Form 1099-K is and what it means to their taxes. Taxpayers who receive Form 1099-K can get a jumpstart on their taxes with TurboTax by snapping a photo of your Form 1099-K, verifying their data, and their information will be pulled into the correct form. Whether an occasional online seller or self-employed TurboTax customers will get specific guidance to help them understand how 1099-K income impacts their taxes and accurately report their 1099-K income. TurboTax customers can also fully hand over their taxes to a TurboTax Live Full Service tax expert who specializes in self-employed and incorporated small business taxes who can prepare their taxes from start to finish in one meeting.
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