The Internal Revenue Service (IRS) issued updated Form 1099-K guidance Tuesday, providing information on reporting thresholds that would trigger the form while answering several other key questions.
Form 1099-K is an information return triggered when taxpayers receive payments for goods and services through payment cards, payment networks, or online marketplaces. The IRS revised its FAQs related to Form 1099-K on Feb. 6 to “provide more general information for taxpayers, including common situations, along with more clarity for industry and what organizations should send Forms 1099-K.”
Payment cards include credit and debit cards, value cards, and gift cards. Payment apps including PayPal and online marketplaces like Amazon are referred to as third-party settlement organizations (TSPOs), according to an IRS Fact Sheet.
Any gains made by individuals from transactions involving payment cards or TSPOs could be taxed. For transactions done through TSPOs, the form will only be generated if it meets certain reporting thresholds.
For the calendar year 2023, the threshold is payments exceeding $20,000 provided there are over 200 transactions. If a taxpayer’s income transactions through a TSPO exceeds this limit, they will receive a Form 1099-K.
“Your state may have a lower reporting threshold for TPSOs, which could result in you receiving a Form 1099-K, even if the total gross payments you received in the year did not exceed the federal reporting threshold,” the IRS states.
For payment cards, there is no reporting threshold. As such, if an individual were to receive even $0.01 from a payment card transaction, they would receive the form.
Form 1099-K is prepared by entities that facilitate the electronic payments, like PayPal and Amazon, and sent to the taxpayer who can then use it to accurately calculate tax dues. The return is also applicable to taxpayers engaged in gig work and who casually sell goods online.
The form contains information regarding all payments received by a taxpayer. It won’t include details on adjustments like fees, credits, refunds, shipping, cash equivalents, or discounts. Taxpayers can deduct such adjustments from the total receipts mentioned in Form 1099-K when reporting their returns.
The IRS stressed that Form 1099-K reporting does not affect whether payments received from such transactions are taxable or not. Even if a taxpayer did not receive a Form 1099-K, but earned money through the sale of services or goods online, they must report such income in their returns, the agency said.
In case taxpayers have questions regarding their Form 1099-K or there are errors in it, they should contact the entity which filed the form. Entity details are mentioned in the form.
Republican Opposition
The annual reporting threshold for Form 1099-K was reduced from $20,000 to $600 by the American Rescue Plan Act of 2021 (ARPA). The IRS initially intended to implement the lower threshold in 2022.However, the agency pushed it to 2023 after taking into account taxpayer confusion and pushback from third-party payment apps. After receiving more negative feedback, the IRS once again delayed making the change to tax year 2024.
Reducing the reporting threshold to $600 was met with fierce opposition from Republican lawmakers. In January last year, Rep. Carol Miller (R-W.Va.) introduced the “Saving Gig Economy Taxpayers Act” which sought to revert the 1099-K reporting threshold back to $20,000 and 200 transactions.
“Because of Democrats law change in the 1099-K form, an American getting rid of old exercise equipment from his garage online now qualifies as a salesman of workout equipment, a teenager babysitting the neighbors’ kids is in the childcare business, and roommates who split rent are now property managers, and are all eligible to be taxed by the IRS,” the lawmaker said at the time.
“The IRS will use this additional time to continue carefully crafting a way forward to minimize burden,” the agency’s commissioner, Danny Werfel, said in a statement. “We'll work closely with third-party groups, tax professionals, and others to find the smoothest path to ensure compliance with the law.”
In December, Republicans on the House Ways and Means Committee sent a letter to Mr. Werfel, asking him to testify why the agency decided not to implement the lower $600 reporting threshold from tax year 2022, even though Congress passed the American Rescue Plan Act with this provision.
The Republicans made it clear that “we did not vote for, nor do we support, the lowering of the Form 1099-K threshold.” However, “we have serious concerns with the IRS’s actions that have continually ignored the clear letter of the law, and now your agency appears to be writing an entirely new policy without the authority to do so.”
“Congress has the power to legislate. The IRS does not. We do not like the law congressional Democrats passed and that President Biden signed, but we cannot ignore the rule of law violations involved in the agency’s decision.”
