IRS Delays New Reporting Threshold for 3rd Party Settlement Organizations

Date January 19, 2024
Authors HBK CPAs & Consultants
Categories

On November 22 the IRS announced a delay of the new $600 Form 1099-K reporting threshold for third-party settlement organizations for calendar year 2023. The announcement was released as IRS Notice 2023-74. According to the IRS, the Notice is in response to “feedback from taxpayers, tax professionals and payment processors,” and is designed “to reduce taxpayer confusion.”

“As the IRS continues to work to implement the new law, the agency will treat 2023 as an additional transition year,” the IRS release noted. “This will reduce any potential confusion caused by the distribution of an estimated 44 million Forms 1099-K sent to many taxpayers who wouldn’t expect one and may not have a tax obligation. As a result, reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023.”

The IRS release referred to the “complexity of the new provision.” It further notes that the delay is intended to give the large number of taxpayers affected by the reporting threshold enough lead time to understand and plan their obligations. It added that the threshold it is planning for tax year 2024 will be $5,000 for tax year 2024.

IRS Commissioner Danny Werfel said the IRS is “looking to update the Form 1040 and related schedules for 2024 which would make the reporting process easier for taxpayers.”

In terms of background related to the delay, the American Rescue Plan (ARP) required “third-party settlement organizations, which include popular payment apps and online marketplaces, to report payments of more than $600 for the sale of goods and services on a Form 1099-K starting in 2022. These forms would go to the IRS and taxpayers to help taxpayers fill out their tax returns. Before the ARP, the reporting requirement applied only to the sale of goods and services involving more than 200 transactions per year totaling over $20,000.”

The new requirement was temporarily delayed by the IRS last year.

For more information about the reporting requirements, contact your HBK tax advisor.

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