December 15, 2023
The IRS has temporarily delayed enforcement of the lowered reporting requirement for third-party settlement organizations (TPSOs) until calendar year 2023. The IRS is treating calendar year 2022 as a transition period for implementing the lowered threshold reporting for TPSOs that would have generated Form 1099-Ks for taxpayers. This is intended to facilitate an orderly transition for TPSO tax compliance and individual payee income tax reporting compliance.
Background:
The American Rescue Plan Act of 2021 changed the reporting requirements for Form 1099-K. Payment Settlement Entities (PSE), such as banks or other organizations that process credit card transactions, are responsible for filing Form 1099-K. A reportable payment transaction for Form 1099-K includes a payment card transaction or a third-party network transaction.
A payment card transaction is any transaction in which a payment card, or an account number or other identifying information associated with a payment card, is accepted as payment. Payment cards include credit cards, debit cards, gift cards, flexible spending arrangement cards and health reimbursement arrangement cards.
A third-party network transaction is any business transaction that is processed through a third-party payment network, such as Venmo, PayPal, and CashApp.
Form 1099-K includes the gross amount of all reportable payment transactions. The gross amount of a reportable payment does not include any adjustments for credits, cash equivalents, discounts, fees, refunds, or any other amounts. The dollar amount of each transaction is determined as of the date of the transaction.
However, the following transactions are not reportable:
The use of a payment card by a cardholder to withdraw funds from an automated teller machine (ATM), or to obtain a cash advance or loan against the cardholder’s account.
The acceptance of a check issued in connection with a payment card account by a merchant or other payee; or
Any transaction in which a payment card is accepted as payment by a merchant or other payee who is related to the payment card issuer.
Transition rules:
Under a de minimis exception (to which the IRS is applying a transition period), a third party settlement organization is required to report any information about a participating payee's third-party network transactions only if—
For returns for calendar years beginning before January 1, 2023, the gross amount of total reportable payment transactions exceeds $20,000, and the total number of such transactions exceeds 200. The IRS will not impose penalties on TPSOs that fail to file or furnish Forms 1099-K unless the gross amount of the total reportable payments required to be reported or the number of transactions exceeds the above threshold.
For returns for calendar years beginning after December 31, 2022, the gross amount of total reportable payment transactions exceeds $600 for the calendar year, regardless of the number of transactions.
Backup withholding requirements:
The backup withholding rules, which impose withholding obligations on certain reportable transactions for which there is an incorrect TIN, apply to transactions that are reportable as payments made in settlement of payment card transactions. With respect to payments made by a third party settlement organization in settlement of a third party network transaction, backup withholding is not required unless the payee has received payment from that third party settlement organization in more than 200 transactions within a calendar year; the monetary threshold does not apply.
Income reporting beginning in 2023:
Taxpayers will receive a Form 1099-K from each PSE from which they received payments in settlement of reportable payment transactions. For transactions incurred in calendar year 2023, recipients should receive Form 1099-K by January 31, 2024, for all payment card transactions, and payments in settlement of third-party payment network transactions that exceeds the minimum reporting thresholds for gross payments for goods or services that exceed $600 for any number of transactions.
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