The Internal Revenue Service said Tuesday it would again postpone the $600 threshold for reporting transactions on Form 1099-K for the second year in a row and begin to phase in a threshold of $5,000 starting in 2024.
In conjunction with the announcement, the IRS released Notice 2023-74 announcing the delay of the new $600 Form 1099-K reporting threshold for third-party settlement organizations for calendar year 2023. The American Rescue Plan Act of 2021 lowered the old threshold from $20,000 to $600 as a way of collecting more taxes from people and businesses who receive payment through third parties such as eBay, PayPal, Airbnb, Venmo, Etsy and more, but many taxpayers and tax professionals had worried that would prompt a flood of 1099-K forms arriving in the mail for people who had never been subject to the requirement.
Last December, the IRS postponed the new threshold for a year (see story). But many taxpayers and the IRS itself remain unprepared for the change, and last week, the Government Accountability Office released a report predicting the IRS would receive 30 million more 1099-K forms than usual, for a total of 44 million forms (see story).
The IRS said it would continue to work to implement the new law and will treat 2023 as another transition year. It hopes to reduce the potential confusion caused by the distribution of the estimated 44 million forms sent to many taxpayers who wouldn’t anticipate one and may not have a tax obligation. That means reporting won;t be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023.
In the meantime, to give taxpayers more time to get accustomed to the change, the IRS is planning for a threshold of $5,000 for tax year 2024 as part of a phase-in to implement the $600 reporting threshold.
After hearing feedback from the tax professional community, the IRS said it’s also looking to make updates to the Form 1040 and related schedules for 2024 that would make the reporting process easier for taxpayers. The changes to the 1040 forms are complicated. though, and take time, so delaying changes to tax year 2024 allows for additional feedback.
“We spent many months gathering feedback from third-party groups and others, and it became increasingly clear we need additional time to effectively implement the new reporting requirements,” said IRS Commissioner Danny Werfel in a statement Tuesday. “Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion as we continue to look at changes to the Form 1040. It’s clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area.”
The IRS noted that the new reporting requirements don’t apply to personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill. Those payments are not taxable and should not be reported on Form 1099-K.
However, the casual sale of goods and services, including selling used personal items like clothing, furniture and other household items for a loss, could generate a Form 1099-K for many people, even if the seller has no tax liability from those sales.
This complexity in distinguishing between these types of transactions factored into the IRS decision to delay the reporting requirements an extra year and to plan for a threshold of $5,000 for 2024 in order to phase in implementation. The IRS is asking for feedback on the threshold of $5,000 for tax year 2024 and other elements of the reporting requirement, including how best to focus reporting on taxable transactions.
“The IRS will use this additional time to continue carefully crafting a way forward to minimize burden,” Werfel said in a statement. “We want to make this as easy as possible for taxpayers. We will work to make the new reporting requirements easier for them, and we’ll work closely with third-party groups, tax professionals and others to find the smoothest path to ensure compliance with the law. This is consistent with our Strategic Operating Plan. The IRS is focused on meeting taxpayers where they are and helping them get it right the first time.”
The IRS told reporters it would update its frequently asked questions page, as well as produce additional educational content for taxpayers. Payors who comply with the current threshold of $20,000 and 200 transactions won’t be penalized for failing to file or furnish information returns as long as they comply with these rules that are in the notice. However, there’s one exception to the thresholds in a situation involving backup withholding. In cases where third-party settlement organizations that have backup withheld on a payee and the total reportable payments to that payee in the year exceeded $600, then the third party settlement organization will be required to file a 1099-K in that situation.
Accounting Today and other news outlets asked about the various bills that have been introduced in Congress to raise the 1099-K threshold and whether the IRS was deciding on its own threshold.
The IRS said it had previously made such adjustments in the past for phasing in legislation such as the Foreign Account Tax Compliance Act and can’t make assumptions that Congress is going to make additional changes. The IRS is going to work on implementing the law as it stands now, and the planned $5,000 threshold is a phased-in approach to eventually implementing the $600 threshold that’s within the American Rescue Plan Act. If Congress makes further changes, the IRS will adapt, but at this point it will continue to take a phased-in approach to eventually get to the $600 threshold.
IRS officials were also asked about specific examples, such as the sale of concert tickets after a controversy erupted this summer over whether the sale of Taylor Swift tickets over StubHub and similar services would subject concert attendees and ticket sellers to the new Form 1099-K rules. The IRS noted that it could be a couch, a car, clothing, a bicycle or anything that a person chooses to sell that is their own personal asset would fall into the category of reporting it as either a gain or a loss.
If taxpayers sold at a loss, which means they paid more for the items than they sold the items for, they will be able to zero out the payment on their tax return by reporting both the payment and an offsetting adjustment on a Form 1040, Schedule 1. That way, people who unnecessarily get these forms don’t have to pay taxes they don’t owe. On the other hand, if the items were sold at a gain, which means they paid less than they sold it for, they will need to report that gain as income, and it will be taxable.
The latest guidance is available at IRS.gov/1099K. The IRS Understanding Your Form 1099-K webpage provides resources for taxpayers who receive a 1099-K, including what to do with a Form 1099-K and what to do if you get a Form 1099-K in error.
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