Understanding the new changes for 2024 Form 1099-K
The Internal Revenue Service (IRS) recently made headlines with a significant announcement regarding the reporting threshold for Form 1099-K. This development has caught the attention of taxpayers, businesses, and third-party platforms alike. In this article, we will delve into the details of this announcement, examining the reasons behind the delay and the implications of the proposed $5,000 threshold for 2024.
A payment app or online marketplace is required to send you a Form 1099-K if the payments you received for goods or services total over $20,000 from over 200 transactions. However, they can send you a Form 1099-K with lower amounts. Whether or not you receive a Form 1099-K, you must still report any income on your tax return. In the year 2023, TPSOs (Third-Party Settlement Organization) are exempt from disclosing payments for settling third-party network transactions involving a participating payee unless the total payments to be reported surpass $20,000, and the count of such transactions with that payee goes beyond 200.
Looking ahead to the calendar year 2024, the IRS is strategizing for a $5,000 threshold. This is a step-by-step strategy in aligning with the Act’s $600 reporting threshold.
This includes payments for any:
- Goods you sell, including personal items such as clothing or furniture
- Services you provide
- Property you rent
The payments can be made through any:
- Payment app
- Online community marketplace
- Craft or maker marketplace
- Auction site
- Car-sharing or ride-hailing platform
- Ticket exchange or resale site
- Crowdfunding platform
- Freelance marketplace
Reporting threshold
For tax year 2023, payment apps and online marketplaces are required to file a 1099-K for personal or business accounts that receive over $20,000 in payments from over 200 transactions for goods or services. There are no changes to what counts as income or how tax is calculated.
The reporting threshold for third-party settlement organizations, which include payment apps and online marketplaces, was changed to $600 by the American Rescue Plan Act of 2021. The IRS announced a delay in implementing this change for tax year 2023, which covers tax returns generally filed in early 2024.
Although the Form 1099-K reporting threshold for 2023 is $20,000, companies could still send the form for totals over $600.
Personal payments from family and friends
The money you received from friends and family as a gift or repayment for a personal expense should not be reported on a Form 1099-K. These payments aren’t taxable income. For example: Sharing the cost of a car ride or meal, receiving money for birthday or holiday gifts, or getting repaid by a roommate for rent or a household bill. Be sure to note these types of payments as non-business in the payment apps when possible.
IRS Decision to Delay Implementation
Recognizing the challenges faced by stakeholders, the IRS has decided to delay the implementation of the new reporting threshold. This decision comes after careful consideration of public feedback and industry concerns. The delay aims to provide businesses and platforms with the necessary time to adapt to the upcoming changes.
New Reporting Threshold for 2024
Looking ahead, the IRS has proposed a new reporting threshold of $5,000 for the tax year 2024. This phased implementation strategy is designed to ease the transition for affected entities, allowing them to adjust their reporting practices gradually.
Impact on Taxpayers and Third-Party Platforms
Small businesses, in particular, will be significantly affected by this change. The increased threshold aims to reduce the reporting burden on smaller entities while ensuring that larger transactions are appropriately documented. Third-party platforms will also need to reassess their reporting mechanisms to align with the new threshold.
However, business payments have always been taxable and filers should still report 2023 income even if they don’t receive a Form 1099-K. “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,” IRS Commissioner Danny Werfel said in a statement. The agency said it also plans on updates for Form 1040, which is used by taxpayers to file individual income tax returns, and related schedules, to “make the reporting process easier.”
“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,” Werfel said. “It’s clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals, and others in this area.”
The announcement comes in the midst of bipartisan scrutiny over the reporting requirement, as lawmakers and industry professionals voice concerns about potential confusion among taxpayers. Before the postponement, the IRS had anticipated receiving an estimated 44 million 1099-K forms for the tax year 2023.
In conclusion, the IRS’s announcement regarding the delay in Form 1099-K reporting threshold and the introduction of a $5,000 threshold for 2024 reflects a commitment to balancing compliance requirements with the practical challenges faced by taxpayers and third-party platforms. Staying informed and proactive in adapting to these changes will be crucial for businesses of all sizes.
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