Note: IRS delays the rollout of the $600 threshold for 1099-K reporting.
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The threshold for Form 1099-K remains at $20,000 with a 200 transaction limit for the year 2023. This delay designates 2023 as a transition period, maintaining the existing requirements for reporting.
Form 1099-K serves as a record of payments received throughout the tax year from:
- Credit, debit, or stored value cards, including gift cards (payment cards)
- Payment apps or online marketplaces facilitated through third-party payment networks
Third-party payment networks and more generally all payment settlement entities are required to file Form 1099-K with the IRS and provide a copy when the gross payment amount exceeds $600. However, it’s important to note that Form 1099-K should not encompass gifts or reimbursements of personal expenses received from friends and family.
Previously, organizations had to report payments over $20,000 to a recipient with over 200 transactions. Now, starting in 2023, reporting begins at $600 with no threshold on the number of transactions.
These changes align 1099-K with other tax forms. Also, ARPA clarified that 1099-K is for goods and services, not things like charitable donations or cryptocurrency transactions reported on other forms.
Who Sends Form 1099-K?
Payment card companies (like Stripe, or Authorize.net), payment apps (like PayPal or Square), and online marketplaces (like Amazon or eBay) are responsible for sending Form 1099-K.
Who Receives Form 1099-K?
Consider the following circumstances to receive Form 1099-K:
Payments Received via Payment Cards:
Any payments received via credit cards, debit cards, or stored value cards (gift cards) will require a Form 1099-K.
Payments Received Over $600 Through any Payment App/ Online Marketplace:
For payments exceeding $600 received from personal item sales, goods, services, or property rentals through platforms like peer-to-peer payment platforms, digital wallets, online marketplaces, and similar channels mentioned below, you should expect to receive Form 1099-K:
- Peer-to-peer payment platform or digital wallet
- Online marketplace (sale or resale of clothing, furniture and other items)
- Craft or maker marketplace
- Auction site
- Car sharing or ride-hailing platform
- Real estate marketplace
- Ticket exchange or resale site
- Crowdfunding platform
- Freelance marketplace
Who is impacted by the New 1099-K $600 Reporting Threshold Changes?
It will affect a wide range of entities, including gig economy platforms like Uber and Lyft, online marketplaces such as Etsy and Facebook, any companies that use electronic platforms (e.g., PayPal) for goods and services payments, and individual sellers (who sell items worth $600 or more). However, payment settlement entities (PSEs) handling payment card transactions won’t be affected, as they were already required to report all amounts and transactions on Form 1099-K.
What are the consequences of the changes in 1099-K reporting requirements?
Implications of the 1099-K reporting changes are as follows:
Taxpayer Impacts:
- Individual Sellers and Personal Payments: Some individuals who sold personal items on platforms like eBay or received payments through Venmo for personal reasons may now receive a Form 1099-K, even if the amounts are not taxable. These individuals may not be familiar with this form and might be unsure how to handle it in relation to their annual income tax returns.
- Gig Economy Workers: Workers in the gig economy, such as rideshare drivers, craft sellers on platform marketplaces, and independent contractors, may also receive a Form 1099-K, even if they didn’t receive it in previous years. The expansion of the gig economy contributed to this change. Many of these workers may be receiving this form for the first time and may not know how to properly report this income on their annual tax returns.
1099-K Filers:
The lowered payment threshold will significantly affect TPSOs (marketplaces that connect buyers and sellers of goods or services), potentially resulting in a 50% to 100% increase in the number of Forms 1099-K they need to issue. Traditional manual reporting processes may not be sufficient to handle this increased workload. It’s essential to ensure the accuracy and efficient delivery of these forms to avoid penalties for late filing.
Furthermore, the surge in form volumes may lead to more name and TIN combinations to manage for 1099 reporting purposes. TPSOs will need an efficient way to verify these combinations to prevent Backup Withholding obligations and related liabilities for non-compliance.
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