The Internal Revenue Service (IRS) has announced a delay in the reporting thresholds for third-party settlement organizations that were set to take effect for the upcoming tax filing season. As a result of this delay, third-party settlement organizations will not be required to report tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the lower, $600 threshold amount enacted as part of the American Rescue Plan of 2021.
To help smooth the transition and ensure clarity for taxpayers, tax professionals, and industry, the IRS will delay the implementation of the 1099-K changes. Acting IRS Commissioner Doug O’Donnell stated, “The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”
Calendar year 2022 will be a transition period for the implementation of the lowered threshold reporting for third-party settlement organizations (TPSOs). This means that TPSOs will not be required to report transactions on Form 1099-K for the lower threshold amount during this time. The transition period is intended to facilitate an orderly transition for TPSO tax compliance, as well as individual payee compliance with income tax reporting.
Under the new law, beginning January 1, 2023, a TPSO will be required to report third-party network transactions paid in 2022 with any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the number of transactions. TPSOs will report these transactions by providing individual payees with an IRS Form 1099-K, Payment Card and Third-Party Network Transactions.
It’s important to note that the existing 1099-K reporting threshold of $20,000 in payments from over 200 transactions will remain in effect. The change under the new law is significant because tax compliance is typically higher when amounts are subject to information reporting, like the Form 1099-K. However, the IRS noted that it must be managed carefully to help ensure that 1099-Ks are only issued to taxpayers who should receive them. The IRS is working to provide instructions and clarity for taxpayers who may have already received a 1099-K as a result of the statutory changes. Additional details on the delay will be available in the near future along with additional information to help taxpayers and the industry.
