IRS Notice on Form 1099-K Reporting for 2023 Explained

The IRS has recently pulled back on its change requiring third-party settlement organizations (TPSOs) to report transactions exceeding $600 in 2023 rather than its current limit of transactions more than $20,000. Basically, for 2023, the IRS is giving these organizations more time to adapt to new 1099-K reporting rules introduced by the American Rescue Plan Act of 2021.

What is a TPSO?

A TPSO is an online payment facilitator which operates as an intermediary between buyer and seller by transferring funds from the buyer to the seller for goods or services. Common examples include Venmo and PayPal.

What is Form 1099-K?

Form 1099-K is a tax form used by TPSOs to report the total amount of transactions they process for businesses. The IRS uses this form to keep track of these transactions for tax purposes.

What Was the Old Rule?

Before the American Rescue Plan Act, TPSOs only had to report transactions if they exceeded $20,000 in total and were more than 200 in number for each business.

What’s the New Change?

The American Rescue Plan Act changed these limits significantly. TPSOs will be required to report if the total amount of transactions exceeds just $600, regardless of the number of transactions.

What’s Happening in 2023?

For the 2023 tax year, the IRS decided to continue a “transition period.” During this time, TPSOs won’t have to report transactions unless they exceed the old limit of $20,000 in total and more than 200 transactions for each business. This decision gives TPSOs more time to adjust to the new $600 limit, which is now planned to be enforced starting in the tax year 2024.

What Does This Mean for TPSOs?

During this transition year, TPSOs won’t face penalties if they don’t report transactions under the new $600 limit. However, they must still follow other existing reporting requirements, and if they have withheld taxes on behalf of a payee (a person or business receiving payments), they must report this to the IRS if the total payments exceeded $600.

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