Alert
The IRS announced a delay in the $600 reporting threshold for third-party settlement organizations, which had been in effect for the 2022 calendar year. As a result, the IRS says third-party settlement organizations will not have to report tax year 2022 transactions on a Form 1099-K, Payment Card and Third-Party Network Transactions, to the IRS or the payee for the lower $600 threshold amount.
Background
The American Rescue Plan Act of 2021 (ARPA), P.L. 117-2, enacted on March 11, 2021, as a COVID-19 stimulus package, lowered the de minimis dollar threshold to $600 with no transactional threshold for information reporting on third-party network transactions.
Under the prior requirements, taxpayers that accepted payments from a third-party settlement organization would have received Form 1099-K only if:
Transactions were more than 200 and
Total payments were more than $20,000
The lower threshold will substantially increase the number of Forms 1099-K required to be filed with the IRS and furnished to recipients by third-party settlement organizations and their electronic payment facilitators.
Who may receive a Form 1099-K?
There are many ways that someone may receive a Form 1099-K such as when a taxpayer:
Received money from friends or family via payment applications which were not designated as personal
Sold personal household items online
Sold items related to a hobby
Worked for an app-based vendor such as Uber or DoorDash
Had taxes withheld
There may also be circumstances where the taxpayer believes the Form 1099-K has been issued incorrectly.
It is important to note that whether any payments received constitute taxable income has not changed. For example, income received from a hobby is taxable income and the sale of an item owned for personal use may be taxable as a capital gain. Reimbursements of expenses are not generally considered taxable income.
Frequently asked questions (FAQs) and examples
The IRS has released FAQs to help taxpayers and tax professionals understand the form and requirements.
For example, if a taxpayer sells a ticket to a sporting event that is more than $600 and is paid through a third-party settlement organization, they will likely receive a Form 1099-K (once the lower threshold is in effect). Similarly, if a taxpayer sells personal belongings such as a car, a refrigerator or furniture, they will report the gain (the sales price less the cost acquired) as taxable personal gain. If personal-use items are sold for a loss, the loss is not deductible. In addition, loss transactions cannot be netted into gain transactions.
If a taxpayer uses an online application to transfer money to a friend or family member (e.g., for splitting the cost of an expense), generally, they should not receive a Form 1099-K. Third-party payment services, such as PayPal and Venmo, allow users to code transactions according to the type of transaction. If a personal transaction is properly categorized, it should not trigger the issuance of a Form 1099-K.
AICPA advocacy and support
The AICPA is aware of the challenges associated with the change in threshold. The reduction in the de minimis reporting threshold for third-party network transactions will create significantly more reporting requirements for many third-party settlement organizations and electronic payment facilitators. Associated with the increase in information reporting requirements is the potential for increased penalties since many taxpayers could receive a Form 1099-K without realizing they have a filing requirement and could owe taxes.
While AICPA advocacy work continues, we offer additional resources and guidance to support membership.
AICPA Tax Section resources
Annual Tax Compliance Kit — 2022 engagement letters, organizers, checklists and practice guides
Form 1099-K client flyer for individuals — Coming soon
Form 1099-K client flyer for businesses — Coming soon
AICPA Advocacy & Policy
AICPA comments on 1099-K threshold, Dec. 16, 2022
AICPA The Tax Adviser and Journal of Accountancy articles
IRS delays Form 1099-K $600 reporting threshold, Dec. 23, 2022
Changes to Form 1099-K, Journal of Accountancy, June 2022
New, lower Form 1099-K threshold prompts cautions, criticisms, The Tax Adviser, March 2022
Form 1099-K information returns: New rules beginning 2022, The Tax Adviser, January 2022
IRS resources
About Form 1099-K — Information on Form 1099-K and instructions
Form 1099-K FAQs — Answers to questions on definitions, reporting, filing and more
Understanding Your Form 1099-K — IRS overview and guidance regarding Form 1099-K
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