The New $600 Reporting Rule Has Been Delayed

Taxpayers who use apps and online marketplaces such as Venmo, PayPal, eBay, Etsy, or Cash App to accept payments for selling goods or providing services don’t have to worry about the new $600 reporting requirement for 2023. The IRS has announced that it would delay the implementation of the new law that requires third-party settlement organizations (TPSOs) to send a Form 1099-K to anyone who receives more than $600 in a year. The new law is expected to be in effect for 2024.

Form 1099-K is an IRS reporting tax form that shows how much money you have received through a TPSO during the year. Previously, to receive a Form 1099-K from a TSPO, you would have to exceed $20,000 in transactions for goods and services and have more than 200 transactions in a year. However, the IRS has lowered the reporting threshold to $600 starting in 2022. Under this new reporting rule, if you received over $600 through an online platform, you would get a Form 1099-K, and so would the IRS. By lowering the threshold to $600 and notifying the IRS after one transaction is made, the government is making it harder for taxpayers to avoid paying those taxes.

However, at the same time, the new rule creates another tax problem: Tax reporting errors. The new reporting threshold is designed to capture the income received for goods and services. Form 1099-K isn’t meant for your family or friends using PayPal or Venmo for dinner, gifts, shared trips, etc. If the new law is fully implemented, many will be unprepared to prove to the IRS that the money received was a gift or a reimbursement of a share of a meal. As a result, millions of Forms 1099-K could be issued by mistake.

Due to the complexity of implementing the new law, the IRS delayed the $600 reporting requirement last year to 2023. But as the year 2023 is coming to an end, the IRS is still not ready to craft a way forward with the new reporting rule. It appears the IRS needs more time to smooth the transition and ensure clarity for taxpayers, tax professionals, and industry. Therefore, the IRS will again delay the new reporting requirement for one more year (2024).

Here are what you should know about the delay:

• For 2023 and prior years, TPSOs are only required to send out Forms 1099-K to taxpayers who receive over $20,000 and have over 200 transactions.
• Currently, it’s expected that the $600 reporting threshold will be in effect for 2024. However, the IRS has announced that it plans to phase into the $600 reporting threshold using a 2-year window. The IRS will start with a $5,000 threshold for 2024. This means people who receive more than $5,000 in payments from a TPSO in 2024 will receive a Form 1099-K in early 2025 to complete their 2024 tax returns. Then, for the 2025 tax year, the threshold would step down to $600 unless the IRS makes additional changes.
• The delay does not apply to certain credit card transactions.
• TPSOs that have performed backup withholding for a payee during calendar year 2023 must file a Form 945 and a Form 1099-K with the IRS and furnish a copy to the payee if total reportable payments to the payee exceeded $600 for the calendar year.

The IRS will continue to provide information on IRS.gov/1099k. Marcum will also keep you up to date as soon as additional information becomes available.