Latest IRS Updates to the 1099-K Reporting Threshold for Businesses
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The IRS announced in November 2023 several significant changes to the 1099-K reporting threshold for the 2023 and 2024 tax years. These changes are geared towards payments from third-party organizations such as payment apps.
Here is a breakdown of the latest updates to the 1099-K reporting threshold and what they mean for businesses.
What’s Changing
The Planned 2023 Threshold is Delayed
The IRS is delaying its planned change to the 2023 Form 1099-K reporting threshold, which was set to be $600, for third-party payment organizations. Instead, the agency has chosen to make it a transition year to implement other changes under the American Rescue Plan.
However, the original $20,000 and 200 transaction threshold still applies for 2023.
New Lower Reporting Threshold for 2024
Instead of the planned change to make the income threshold $600, the IRS is instead taking a phase-in approach. This approach will lower the current $20,000 threshold to $5,000 for 2024.
What This Means for Businesses
This means that for 2023 and prior years, payment apps and online marketplaces are only required to send out Forms 1099-K to taxpayers who receive over $20,000 in their apps and have over 200 transactions.
For the 2024 tax year, the IRS plans to make that threshold $5,000 to phase in new reporting requirements.
It’s important to note that the higher threshold does not affect the actual tax law to report income on your tax return. No matter the amount, all income is taxable unless it’s excluded by law whether a Form 1099-K is sent or not.
Who Sends Form 1099-K?
Payment card companies, payment apps, and other online marketplaces are required to fill out Form 1099-K and send it to the IRS each year. If you meet the requirements, they must also send you a copy by January 31.
What’s Next?
The IRS stated in its official announcement that these changes are part of a larger phase-in plan to regulate third-party payment organization usage for tax purposes. We will continue to monitor the situation and bring updates as they are announced.
Have questions about form 1099-K or how this change impacts your unique tax situation? Our tax planning and prep experts are here to help. Contact us.