Frequent Venmo users who like to use the app to reimburse their friends and family for purchases, rejoice.
Following feedback from taxpayers, tax professionals and payment processors and to reduce taxpayer confusion, the Internal Revenue Service announced the delay of the new $600 Form 1099-K reporting threshold for third-party settlement organizations for calendar year 2023. According to a news release, 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 more than $20,000 and has more than 200 transactions in 2023.
Given the complexity of the new provision and the large number of individual taxpayers affected, 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). The IRS is also looking to make updates to the Form 1040 and related schedules for 2024 that would make the reporting process easier for taxpayers.
“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,” said IRS Commissioner Danny Werfel. “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.”
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 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.
However, the casual sale of goods and services, including selling used personal items like 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.
The complexity in distinguishing between these types of transactions factored into the IRS decision to delay the reporting requirements for an additional year and to plan for a threshold of $5,000 for 2024 in order to phase in implementation. The IRS, who wants to ensure Forms 1099-K are issued only to taxpayers who should receive them, invites feedback on the threshold of $5,000 for tax year 2024 and other elements of the reporting requirements, including how best to focus reporting on taxable transactions.
For more information visit IRS.gov/1099K.