IRS Postpones Implementation of $600 form 1099-K Reporting Until 2023

January 3, 2023

The information reporting form, IRS Form 1099-K (Payment Card and Third-Party Network Transactions), is used to track business payments made through credit or debit cards and peer-to-peer services such as Venmo, Cash App and PayPal (“Third Party Settlement Organizations” or “TPSOs”). Prior to the year 2022, TPSOs were generally required to issue Form 1099-K to a payee that reported over $20,000 in sales or services and over 200 individual business transactions through the TPSO. 

Starting in the year 2022, TPSOs were required to send a Form 1099-K to the payee if the payee generates total sales or services in excess of $600 for the calendar year through a TPSO regardless of the number of transactions. As a consequence, millions of taxpayers who are self-employed, freelancers, online retailers, rent their vacation homes through websites such as VRBO or AirBNB, or are otherwise part of the gig economy and who accept payment by credit/debit card or through peer-to-peer networks expected to have much more complicated tax reporting starting in 2022 than in prior years. 

As a result of taxpayer confusion, lack of clear guidance, concerns about existing backlog and the impact on the upcoming tax filing season, the IRS recently announced in IRS Notice 2023-10 that TPSOs will not be required to report year 2022 transactions on Form 1099-K for the lower $600 threshold amount. Instead, the Form 1099-K reporting of transactions in excess of $600 will now apply only to transactions that occur starting with the year 2023. The delay is intended to facilitate an orderly transition for TPSO tax compliance, as well as individual payee compliance with income tax reporting. 

Even with this delay in the $600 Form 1099-K reporting requirement, it will be extremely important for payees to keep accurate records. This is because the Form 1099-K will report the gross amount of the payments made to the payee without any reductions for discounts, deductible fees, refunds or other expenses. Additionally, amounts reported on Form 1099-K may also be included on another Form 1099. This could happen, for example, if the payee receives a Form 1099-K from their transaction service and another Form 1099 from the customer who paid them. Also, if the payee accepts credit card payments and uses a third party to process the payments, both the credit card company and the third-party processor may issue the payee a duplicative Form 1099-K for the same amounts. In addition, transactions for personal gifts, charitable contributions and reimbursements are excluded from Form 1099-K reporting but they nevertheless may be included on the Form 1099-K unless the TPSO is able to identify them as such.

If you have any questions regarding Form 1099-K reporting or how it may impact your business. please contact Marc T. Finer, Tax Partner, at 860-240-6096 or mfiner@murthalaw.com.

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