1099-K lower reporting threshold delayed again, this time to 2025

November 21, 2023

IRS also ups payment threshold trigger to $5,000 for the 2024 tax year.

Thanksgiving is this week, but the Internal Revenue Service today skipped all the way to Christmas, giving an estimated 44 million taxpayers an early gift.

Most of these individuals won't have to deal with 1099-K forms in 2024. They now have another year before they'll get this tax statement detailing their self-employment income.

They also can make much more next year — up to $5,000 instead of $600 — before this third-party reporting document must be issued in January 2025.

This latest delay decision, detailed in IRS Notice 2023-74, means that come January 2024 1099-K forms only will go to those who received $20,000 total from more than 200 transactions in 2023.

Change confusion led to first delay: Today's IRS announcement is the second delay in the 1099-K reporting rules that were changed in the American Rescue Plan Act (ARPA) of 2021.

ARPA revised the original reporting trigger of $20,000 in total earnings over more than 200 transactions in a tax year to the much lower $600 amount, regardless of the number transactions. The lower reporting trigger was supposed to take effect for the 2022 tax year.

That didn't happen for a variety of reasons.

Both taxpayers and the payers who are required to issue 1099-Ks were dismayed by the dramatically lower reporting level.

There also was confusion about how to treat personal, nontaxable financial transactions that typically are made through third-party settlement organizations (TPSOs) such as Venmo, PayPal, CashApp, and even TicketMaster resellers.

Payments for things such as birthday or holiday gifts, sharing the cost of a car ride or meal, or reimbursing someone else for a shared household bill are not taxable. Neither are sales of goods and services, including used personal items like clothing, furniture, and other household items sold for a loss.

However, there was concern those amounts could be included in payers' overall transactions with no clear way for the taxpayer, TPSOs, and ultimately the IRS to discern the taxable vs. nontaxable difference.

This was underscored by the TPSO concerns that they didn't have time to fine-tune their systems to comply with the changes.

All this confusion and complaining prompted the IRS on Dec. 23, 2023, to announce it would delay the $600 1099-K reporting rule for a year. That meant the change would apply to 2023 earnings, with the 1099-K forms for $600 in earnings going to affected taxpayers in January 2024.

Even more time, same concerns: But even with more time to adjust, the protests kept coming. So today, the IRS announced another year-long delay, as well as the change in the reporting amount.

"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 about the further delay.

"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," added Werfel.

It also means the IRS can release Form 1040 for tax year 2023 on time, preventing a delay to the upcoming tax filing season.

New dollar amount temporary: The new $5,000 earnings trigger in 2024 for a 1099-K is not a law change. Rather, it is a phasing in of the eventual $600 dollar reporting trigger.

The IRS said it made the administrative change based on the complexity of the new reporting law, the large number of individuals affected, and the need for taxpayers, tax pros, and TPSOs to have certainty with enough lead time.

The IRS did not elaborate on if the phase-in will go from $5,000 to $600, or if another amount will be part of the process.

However, the tax agency did say that it would like feedback on the 2024 tax year $5,000 threshold 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. "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."

Income taxable even without 1099-K: The IRS supports efforts to expand all third-party income reporting. The reason is simple.

When taxpayers know that the IRS gets a copy of the amount they've earned, such as the W-2 issued each year to those with wage-paying jobs, taxpayers report their income more accurately when they file their annual returns.

Additional third-party reporting, such as the 1099-Ks with a lower earnings trigger, also increases tax compliance, notes the IRS. But, the agency acknowledges that the expansion must be done in a way that ensures the forms are issued only to taxpayers who should receive them.

In addition to announcing how it is managing 1099-K changes, the IRS also took the opportunity to remind those who earn money paid through TPSOs that those earnings are taxable even without an official tax statement.

"It's important to note that the higher threshold does not affect the actual tax law to report income on your tax return. All income, no matter the amount, is taxable unless it's excluded by law whether a Form 1099-K is sent or not," notes the IRS on its 1099-K Fact Sheet 2023-27.

You also can track changes on the IRS.gov page Understanding your Form 1099-K.

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