[2023 Tax Season Update] The IRS has announced that they will be delaying the introduction of the new $600 reporting threshold for 1099-K forms. This was to be introduced this tax season.
This means the existing $20,000 and 200 transactions thresholds will remain in place through the current tax season (December 31, 2023).
This coming tax season has the potential to be a mess for many small business and individual tax payers thanks to the new requirements for the 1099-K.
A 1099-K form is a tax form that is used to report payments made for the sale of goods or services (transactions) during a calendar year. The form is issued by third-party payment processors or payment settlement entity (PSE), such as PayPal or Stripe, Etsy Venmo, etc.
The form is sent both to the entity receiving the funds (the seller) and the IRS. This allows the IRS to reconcile payments and ensure business related taxes are collected.
The 1099-K form is not new and has been in place for a while. But the change in reporting requirement per recent legislation (ARPA) for 2022 transactions is what is going to drive a surge in more of these being sent out.
Essentially the aggregate reporting threshold was lowered to $600 starting in 2022, from the prior $20,000 limit. Legislation also removed the minimum transaction limit for reporting from 200 to a single transaction.
While the intent of the 1099-K is to track business related expenses and transactions, it is likely going to go out to a lot more individuals and business taxpayers in 2023 due to the lower thresholds. It will likely even go-out incorrectly to people who shouldn’t be getting this as they have qualifying business expenses.
The IRS in fact cautioned people to wait until the end of January (when the 1099K forms need to be sent out) before filing returns to make sure they have all of their key income documents before submitting their tax return.
Also if the information is incorrect on the 1099-K or received erroneously, taxpayers should contact the third-party processor immediately to resolve the issue. Their details should be on the 1099-K form. The IRS cannot correct it.
Fortunately Congress is also realizing this issue and both Democrats and Republicans have introduced bills to try and reinstate higher reporting thresholds for 1099-K forms.
Just be prepared to deal with this if these bills don’t pass.