IRS delays implementation of lowered form 1099-K reporting threshold

ARTICLE | December 04, 2023

The Internal Revenue Service (IRS) has announced a delay in the new $600 reporting threshold for Form 1099-K for third-party platforms. The delay, announced in a recent notice, will last through calendar year 2023, with the IRS treating it as a transition year to help iron out potential confusion and implementation challenges.

The new threshold, enacted under the American Rescue Plan of 2021 (ARP), initially required third-party payment processors, including popular online marketplaces and payment apps, to report payments exceeding $600 for the sale of goods and services starting in 2022. The previous threshold was set at 200 transactions annually and more than $20,000 in gross aggregate payments.

The decision to delay the change follows feedback from taxpayers, tax professionals, and payment processors expressing concerns about the potential for confusion that could arise from an estimated 44 million 1099-K's sent to taxpayers who may not have a tax obligation. As a result, the reporting requirement will only apply in 2023 for taxpayers who receive over $20,000 and have more than 200 transactions.

The IRS is also planning to set a threshold of $5,000 for tax year 2024 as part of a phase-in process. This approach aims to ease the transition to the lower $600 reporting threshold. The IRS is also considering updates to Form 1040 and related schedules to simplify the reporting process for taxpayers.

It should be noted that the reporting requirements do not apply to personal transactions, such as gifts, shared costs of meals or rides, or payments made to family members for household bills. However, the sale of used personal items could generate a Form 1099-K, even if the seller does not have a tax liability from the sales.

The IRS will continue to provide updates and information on the IRS website. If you have any questions or would like to discuss reporting requirements with one of our expert advisors, please contact our office.