Key changes and insights on Form 1099-K

Following feedback from taxpayers, tax professionals, and payment processors, and to reduce taxpayer confusion, the IRS recently released Notice 2023-74 announcing a delay of the new $600 Form 1099-K reporting threshold for third-party settlement organizations for calendar year 2023.

As the IRS continues to work to implement the new law, the agency will treat 2023 as an additional transition year. This will reduce the potential confusion caused by the distribution of an estimated 44 million Forms 1099-K, Payment Card and Third Party Network Transactions, 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 more than $20,000 and has more than 200 transactions in 2023.

Given the complexity of the new provision, the large number of individual taxpayers affected and the need for stakeholders to have certainty with enough lead time, the IRS is planning for a threshold of $5,000 for tax year 2024 as part of a phase-in to implement the $600 reporting threshold enacted under the American Rescue Plan (ARP).

Following feedback from the tax community, the IRS is also looking to make updates to Form 1040 and related schedules for 2024 that would make the reporting process easier for taxpayers. Changes to the Form 1040 series are complex and take time; delaying changes to tax year 2024 allows for additional feedback.

The ARP required third party settlement organizations (TPSOs), 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 to taxpayers and would 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 more than $20,000.

The IRS temporarily delayed the new requirement last year.

Reporting requirements do not apply to personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill. These payments are not taxable and should not be reported on Form 1099-K. However, the casual sale of goods and services, including selling used personal items such as clothing, furniture and other household items for a loss, could generate a Form 1099-K for many people, even if the seller has no tax liability from those sales.

This complexity in distinguishing between these types of transactions factored into the IRS decision to delay the reporting requirements an additional year and to plan for a threshold of $5,000 for 2024 in order to phase in implementation. The IRS invites feedback on the threshold of $5,000 for tax year 2024 and other elements of the reporting requirement, including how best to focus reporting on taxable transactions.

Check back on the Intuit® Tax Pro Center for updates. Fact Sheet 2023-27 contains more details about this announcement.