The reporting criteria for third-party settlement groups that were supposed to go into effect for the 2018 tax filing season have been delayed, according to the Internal Revenue Service.
Third-party settlement organizations won’t be required to disclose the tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the lower, $600 threshold amount implemented as part of the American Rescue Plan of 2021 as a result of this delay.
In order to implement the lower threshold reporting for third-party settlement organizations (TPSOs) that would have produced Form 1099-Ks for taxpayers, the IRS announced guidance today. According to this guidance, the calendar year 2022 will serve as a transitional phase.
Acting IRS Commissioner Doug O’Donnell stated that “The IRS and Treasury received a number of concerns regarding the timeframe of the implementation of these adjustments under the American Rescue Plan.” “The IRS will put off the implementation of the 1099-K adjustments in order to facilitate the transition and provide clarity for taxpayers, tax experts, and businesses. The extra time will provide taxpayers more time to study and comprehend the new reporting requirements before the forthcoming 2023 tax filing season, which will assist in clearing up any uncertainty.”
The reporting criterion for TPSOs was altered under the American Rescue Plan of 2021. The prior barrier of more than 200 transactions annually surpassing $20,000 in aggregate has been modified to a new level of $600 annually. The legislation is not meant to keep track of private transactions like splitting the cost of a meal or a vehicle trip, giving gifts for birthdays or holidays, or paying a relative or friend to pay a household expense.
A TPSO is obligated by law, regardless of the number of transactions, to disclose third-party network transactions paid in 2022 to any participating payee that exceed a minimum threshold of $600 in aggregate payments, starting January 1, 2023. TPSOs notify the IRS of these transactions by sending an IRS Form to each recipient.
The reporting of transactions above $600 is postponed to transactions that take place after the calendar year 2022 during the transition period outlined in Notice 2023-10PDF. The goal of the transition phase is to promote a smooth transition for TPSO tax compliance and individual payee income tax reporting compliance. Any individual who receives payment for a business transaction from a third-party settlement organization is referred to as a participating payee in the context of a third-party network transaction.
Due to the fact that tax compliance is higher when amounts are subject to information reporting, such as Form 1099-K, the modification made by the law is quite significant. However, the IRS warned that it needs to be handled properly to guarantee that only the correct taxpayers are sent 1099-Ks. Tax preparers and software suppliers have the knowledge necessary to help taxpayers, and it’s crucial that taxpayers comprehend what to do as a consequence of this reporting.
In the near future, more information to assist taxpayers and the sector will be made available, along with further information on the delay. The IRS is working quickly to offer guidance and clarification for taxpayers who could already have gotten a 1099-K as a consequence of the statutory changes so that taxpayers understand what to do.
The current 1099-K reporting limitation of $20,000 in payments from more than 200 transactions will continue to apply, according to the IRS.