After facing pushback from the tax community and third-party payment facilitators, the Form 1099-K reporting threshold will remain unchanged for calendar year 2023 in lieu of a phased-in approach beginning next year to allow more time to address taxpayer confusion. (IR 2023-221; Fact Sheet 2023-27; Notice 2023-74, 2023-51 IRB)
The American Rescue Plan Act of 2021 (ARPA; PL 117-2) included a provision to lower the Code Sec. 6050W de minimis threshold from $20,000 (and over 200 reportable transactions) to $600, raising alarm bells from third-party settlement organizations, tax professionals, and the general public. Instead of immediately flipping the switch and enforcing the new Form 1009-K rules, the IRS in December 2022 delayed the change, treating last year as a transition year.
Despite legislative attempts to find a compromise somewhere between $600 and $20,000, Congress did not revise the ARPA provision. On November 21, announced the change will be delayed again and will not impact the upcoming tax filing season. Instead, the $600 mark will be reached over time, with the threshold for 2024 set at $5,000.
“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,” said IRS Commissioner Danny Werfel. “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. It’s clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area.”
On a background call with reporters, the IRS clarified which types of transactions are applicable to Form 1099-K. Examples of where reportable transactions occur include online and social media marketplaces, craft or maker marketplaces, auction sites, resale sites, crowdfund crowdfunding platforms and freelance marketplace. However, the IRS is not interested in what they call “friends and family transactions” such as birthday gifts, rideshare cost splitting, or dinner reimbursement. These transactions are not taxable events, the IRS explained, whereas sales where a gain or loss is recognized is the focus of its information reporting regimes.
“If taxpayers sold at a loss, which means they paid more for the items than they sold them for, they’ll be able to zero out the payment on their tax return by reporting both the payment and an offsetting adjustment on a Form 1040, Schedule 1,” read an accompanying fact sheet (FS 2023-27). “This will ensure people who unnecessarily get these forms don’t have to pay taxes they don’t owe. If they were sold at a gain, which means they paid less than they sold it for, they will have to report that gain as income, and it’s taxable. If you receive a Form 1099-K for a personal item sold at a gain, report it on both.”
The IRS emphasized that the transition period does not absolve taxpayers of their income reporting responsibilities. It hinted at forthcoming materials to be published before tax season to further clear up confusion.
For more information regarding the de minimis exception, see Checkpoint’s Federal Tax Coordinator ¶S-3699.19.
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