In late November, the IRS announced a delay in the $600 reporting threshold requirement. The decision was made due to feedback received from tax professionals, payment processors, and general taxpayer confusion. This means the 2023 tax year will serve as another transition year leaving prior threshold reporting requirements in place (more than $20,000 or more than 200 transactions). It was also announced that the IRS is planning to implement a new reporting threshold of $5,000 for 2024 to phase in the new law. The delay is welcome news for businesses that would otherwise be required to prepare and submit Form 1099-K. To help clients, prospects, and others, WhippleWood CPAs has summarized the key details below.
What is Form 1099-K?
It is an information return used to report payments that taxpayers receive during the year from credit, debit, or gift/payment cards, payment apps, or online marketplaces (known as third-party settlement organizations). The Form is generally used when a taxpayer sold or provided services and was paid an amount that exceeds the reporting threshold using a payment app, etc. Form 1099-K provides both the IRS and the individual with the relevant amounts to be used when submitting a federal tax return.
What is the Threshold Amount?
For payment cards, there is not a threshold amount that has to be met. This means if a taxpayer received 5 cents during the tax year from a payment card transaction, a Form 1099-K would be sent. For payment apps and online marketplaces, the threshold remains for payments received that exceed $20,000 or more than 200 transactions per payee.
What Qualifies as a Payment Card?
According to the IRS, a payment card includes credit, debit, and gift cards. The card is issued according to an agreement that includes one or more card issuers, a network of persons unrelated to each other the issuer who agrees to accept the cards as payment, and mechanisms for settling the transactions between the merchants and those who accept them as payment.
What is Reported on Form 1099-K?
The reported information includes the gross amount of reportable payment transactions. It does not include adjustments for fees, credits, refunds, shipping, or discounts. These are not considered income. A taxpayer can deduct such items from the gross amount when including the information on the tax return.
How does 1099-K Reporting Relate to 1099-MISC and 1099-NEC Reporting?
Payments made by businesses by cash or check are reported on 1099-MISC or 1099-NEC forms. When businesses make payments by debit or credit cards, they are not supposed to report those payments on 1099s. If payments are reported on a 1099-K and then the customer also reports the payment on a Form 1099-MISC or 1099-NEC, the payee should request a correction of the 1099-MISC or 1099-NEC form to exclude payments made by debit or credit card.
Is Payment Reporting Required If a 1099-K was not Received?
The answer is yes. The reporting threshold does not affect the taxability of payments or whether a return must be filed. All income is taxable even if a Form 1099-K is not received. The IRS notes this includes income amounts not reported on forms including payments received in cash, property, or services.
The recently announced changes to Form 1099-K threshold reporting are welcome news for payment processors and payment recipients alike. Since the rules governing this reporting requirement, it is important to consult with a qualified tax advisor to determine how you will be affected. If you have questions about the information outlined above or need assistance with a tax or accounting issue, WhippleWood CPAs can help. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.