IRS Delays Implementation of $600 Reporting Threshold in Form 1099-K for 2023, Plans to Set $5,000 Threshold for TY 2024 

The IRS has postponed the introduction of the $600 threshold for 1099-K reporting by third-party settlement organizations for the calendar year 2023, citing the need for additional lead time due to the complexity of the new provisions and the involvement of a significant number of taxpayers. 

The IRS has declared that 2023 will be considered an additional transition year as the agency continues its efforts to implement the new law, according to a recent announcement. This means that platforms like eBay, Etsy, PayPal, and payment apps won’t be required to issue Form 1099-K to customers in 2023 unless they processed over the current threshold amount of $20,000 or more than 200 transactions. 

According to IRS Commissioner Danny Werfel, there has been an extensive process of collecting feedback from third-party groups and other stakeholders over the past few months. It has become increasingly clear that additional time is needed to effectively implement the new reporting requirements. 

It’s the second year in a row that the IRS has postponed the implementation of the new regulation. This delay prevents an anticipated issuance of approximately 44 million 1099-K forms to numerous taxpayers for the current tax year. Many of these recipients may not have owed taxes on the payments and wouldn’t have anticipated receiving such a form, as per the IRS announcement. 

Another reason for the delay in the new reporting rules was partly because people were confused about which transactions should be reported. For instance, transactions between friends or family, like selling a couch or repaying a friend, don’t need reporting. But selling used items for a loss on platforms like eBay might generate a 1099-K, even if there’s no tax owed. On the other hand, sales by small businesses for a profit could be taxable. The delay aims to give regulators and platforms time to generate clearer guidelines. 

Reporting Threshold to be lowered to $5,000 for tax year 2024 

The IRS plans to introduce the new $600 reporting threshold in stages, starting with a lowered threshold of $5,000 for tax year 2024. This phased approach aims to address complexity, provide certainty to stakeholders, and allow for a smoother transition to the new reporting requirements under the American Rescue Plan. 

Therefore, the individuals receiving payments exceeding $5,000 through platforms like PayPal in 2024 will receive the 1099-K tax form in early 2025 for their 2024 tax returns. The threshold for the 2025 tax year would then decrease to $600, barring any further adjustments by the IRS. 

Key Points for Your 2023 Form 1099-K: 

Continued Reporting Rule: The established reporting rule for third-party payment platforms remains unchanged for the current tax year i.e. 2023. 

Threshold Criteria: A payment app or online marketplace is required to report the gross payments you received for goods or services to you and the IRS in January if it surpasses 200 transactions or is for more than $20,000.  

• Self-Employed Individuals: Creators, influencers, rideshare drivers, and those with side gigs may receive Form 1099-K for self-employment payments via credit, debit, or prepaid cards, exceeding $20,000 or 200 transactions. 
• Online Sellers: Sellers on platforms like Ebay, Airbnb, Etsy, and VRBO could receive a Form 1099-K if sales surpass $20,000 or transactions go beyond 200, even for occasional or hobby sales. 

Note: Business transactions encompass payments for goods or services, including tips. However, personal transactions, such as splitting dinner expenses with a friend or sending money to your child for their expenses, are not included. 

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