The IRS announced it has delayed implementation of its new $600 1099-K threshold on third-party settlement organizations for 2023, saying the complexity of the new provisions and the amount of taxpayers involved requires more lead time.
“As the IRS continues to work to implement the new law, the agency will treat 2023 as an additional transition year,” the agency said in an announcement today. “This will reduce the 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 said it is planning 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).
The agency also said it is looking to make updates to Form 1040 and related schedules for 2024 that would also make the filing process easier for taxpayers.
The requirements have been viewed by some as a burden for gig workers and other independent contractors, with the agency estimating that 30 million more Form 1099-Ks would be generated as a result of the new thresholds. This is the second time the IRS has delayed the measure.
The General Accounting Office (GAO) issued a report warning that many Americans will likely not understand the new reporting requirements, and that the IRS lacks the ability to use the information.
“We spent many months gathering feedback from third party groups and others, and it became increasingly clear we need additional time to effectively implement the new reporting requirements,” IRS Commissioner Danny Werfel said in a prepared statement. “Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion as we continue to look at changes to the Form 1040. It’s clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area.”
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. 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.
“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,” the IRS noted.
But the agency said Form 1099-K could be required for many people with the casual sale of goods and services, including selling used personal items like clothing, furniture and other household items for a loss, 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 agency said. “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.”
“Expanded information reporting, which will occur as the result of the change in thresholds for Form 1099-K, is important because it increases tax compliance and can reduce burden on taxpayers seeking to follow the law. The IRS believes that expansion must be managed carefully to help ensure that Forms 1099-K are issued only to taxpayers who should receive them. In addition, it’s important that taxpayers understand what to do as a result of this reporting, and that tax professionals and software providers have the information they need to assist taxpayers.
