A delay in the third-party settlement organizations’ reporting thresholds that were supposed to go into effect for the upcoming tax filing season was announced by the Internal Revenue Service today.
A delay in the third-party settlement organizations’ reporting thresholds that were supposed to go into effect for the upcoming tax filing season was announced by the Internal Revenue Service today.
Third-party settlement organizations won’t be required to report tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the lower, $600 threshold amount implemented as part of the American Rescue Plan of 2021 as a result of this delay.
In order to implement the lower threshold reporting for third-party settlement organizations (TPSOs), which would have produced Form 1099-Ks for taxpayers, the IRS has issued guidance. According to this guidance, the calendar year 2022 will serve as a transitional period.
“The IRS and Treasury have heard a number of concerns about the timeline for implementing these changes under the American Rescue Plan,” Acting IRS Commissioner Doug O’Donnell said. The IRS will put off putting the changes to the 1099-K into effect in order to facilitate the transition and ensure clarity for taxpayers, tax experts, and businesses. By giving taxpayers more time to prepare and comprehend the new reporting requirements, the extra time will help clear up any ambiguity during the upcoming 2023 tax filing season.
The American Rescue Plan of 2021 altered the TPSO reporting threshold. The previous threshold of more than 200 transactions annually exceeding $20,000 in aggregate has been changed to a new threshold of $600 annually. Personal transactions like splitting the cost of a meal or a car ride, giving gifts for birthdays or holidays, or paying a relative or friend to pay a household bill are not covered by the law.
A TPSO is required by law, regardless of the number of transactions, to report third-party network transactions paid in 2022 to any participating payee that exceed a minimum threshold of $600 in aggregate payments, starting January 1, 2023. Individual payees receive IRS Form 1099-K, Payment Card, and Third-Party Network Transactions, which TPSOs use to report these transactions.
The transitional period outlined in Notice 2023-10PDF postpones the reporting of transactions totaling more than $600 to those that take place after the calendar year 2022. The transition period is intended to ensure an orderly transition for TPSO tax compliance as well as individual payee income tax reporting compliance. Any individual who accepts payment for a business transaction from a third-party settlement organization is referred to as a participating payee in the context of a third-party network transaction.
The law change is very significant because tax compliance is higher when amounts are subject to information reporting, such as Form 1099-K. However, the IRS warned that it needs to be handled carefully to guarantee that only the correct taxpayers are given 1099-Ks. Tax preparers and software providers have the knowledge necessary to help taxpayers, and it’s crucial that taxpayers comprehend what to do as a result of this reporting.
More information on the delay, as well as additional information to assist taxpayers and the industry, will be available in the near future. The IRS is working quickly to provide instructions and clarification for taxpayers who may already have received a 1099-K as a result of the statutory changes.
The IRS also stated that the current reporting threshold for Form 1099-K, which is $20,000 in payments from more than 200 transactions, will continue to be in place.
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