In late November, the IRS announced a delay in the $600 reporting threshold requirement for payment apps and online marketplaces. The decision was made due to feedback received from tax professionals and payment processors and general taxpayer confusion. The 2023 tax year will serve as another transition year leaving prior threshold reporting requirements in place. This means only payees who made gross payments of more than $20,000 or more than 200 transactions will remain. The delay is welcome news for businesses that would otherwise be required to prepare and submit Form 1099-K. To help clients, prospects, and others, Wilson Lewis has summarized the key details below.
Form 1099-K, Payment Card, and Third-Party Network Transactions is for taxpayers who received payments during the year from payment apps, third-party online marketplaces, credit cards, debit cards, gift cards, or other stored value cards.
In November 2023, the IRS announced an extension for the $600 reporting threshold for Form 1099-K so organizations will not have to worry about it in calendar year 2023. This was done to lessen confusion and provide adequate guidance to taxpayers who will need to file these reports. However, taxpayers who receive more than $20,000 and have more than 200 transactions in 2023 will still be subject to required reporting in this transition year. In 2024, the IRS plans to set the threshold at $5,000 instead of $20,000.
The IRS has included updated FAQs about Form 1099-K on Fact Sheet 2024-03. Revisions to the FAQs include more essential details for taxpayers about which organizations and industries should be sending the forms. New guidance has been provided in the following sections.
General Information
In addition to consideration of the transition year, threshold amounts before receiving a 1099-K depend on the entity sending out the forms. For example, payment cards will send out Form 1099-K even if the taxpayer received $0.01 in payments.
The threshold for third-party settlement organizations (TPSOs), remains the same for tax year 2023 at $20,000 and more than 200 transactions. States may set their reporting thresholds for TPSOs, so taxpayers should be mindful of this distinction. Plus, organizations may send out reports even if the payee doesn’t meet the threshold.
In some instances, the 1099-K may not be distributed to taxpayers; however, they are still responsible for reporting payments. Income received in cash, property, services, and through payments eligible for 1099-K reporting in this year or next are required to be accounted for on tax returns.
When individuals receive Form 1099-K, they should expect to see total gross reportable payments, which will not include any relevant adjustments, such as refunds, credits, cash equivalents, fees, shipping, or discounts. These items will need to be deducted from the gross amount when they are reporting the income. To express the gain more accurately on sales, individuals may want to establish a basis of the original purchase price for the sale of goods.
The types of payments received will determine where the information is reported on tax returns. For example, gig economy income could be reported on 1040, Schedule C, Profit or Loss from Business (Sole Proprietorship). If an individual receives a form, they will still need to verify that the amount is correct and make needed adjustments.
Not all reported payments on Form 1099-K are taxable. For example, selling personal items at a loss do not increase taxable income, because no gain is involved. Payments of reimbursements for shared costs or gifts are also not considered taxable income because they are not related to payments for goods and services.
Third-party filers should know that Form 1099-K can be filed electronically using the Information Returns Intake System (IRIS) or Filing Information Returns Electronically (FIRE) system. Filers who need to file 10 or more information returns need to file electronically, with others also being encouraged to do so.
Entities are required to submit Forms 1099-K to the IRS by February 28 which covers the previous tax year if they are filing by paper. Electronic filing has a longer extension of March 31. Merchant-acquiring entities need to provide reports to taxpayers, or they must outsource transaction processing to processors that will also be contractually obligated to pay the eligible payee. If a transaction is reportable on Form 1099-MISC or Form 1099-NEC, it does not need to be reported on Form 1099-K.
The recently announced delay is welcome news for both taxpayers and companies required to prepare and file Form 1099-K. Since the rules are complicated, it is essential to consult with a qualified tax advisor to determine how you will be impacted. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.
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