December 27, 2023
Taxpayers who receive payments through providers such as PayPal, Venmo, and Etsy will be happy to learn the IRS has again delayed reporting changes. While the IRS was originally planning to require distribution of the forms for anyone who received $600 in payments or more through these third-party providers, the agency just announced another delay. This means the current payment threshold of $20,000 and 200 transactions will be in place for the current tax year. The higher reporting limits mean many will not be required to pay federal income tax on income earned through these sources. However, there is a $5,000 threshold change planned for 2024. To help clients, prospects, and others, Wilson Lewis has summarized the key considerations below.
Payments that come through third-party payment networks, like Venmo and PayPal, or those received via payment card transactions, are reported on Form 1099-K: “Payment Card and Third Party Network Transactions.” Self-employed individuals are most likely to receive these reports to track and report income earned through the platforms.
Before the proposed changes, people would get a 1099-K if they received $20,000 within a calendar year from over 200 transactions. Some platforms may also send a 1099-K even if individuals haven’t met these thresholds. All income earned through these platforms should be reflected, and the reports ensure self-employed individuals are paying the correct amount in taxes.
Say someone uses Venmo or a similar app to receive payments from friends, family, or coworkers for things like lunch, rent, or going in on a gift together. These kinds of payments are not subject to 1099-K reporting.
The IRS had planned to change the reporting threshold to $600 for tax year 2023, a significant shift from previous years. However, this change has been delayed for a year, meaning the threshold for tax year 2023 will still be $20,000 and 200 transactions.
One of the big reasons behind the delay, according to the IRS, has to do with how the payment processors are currently set up. Chances are good that many taxpayers would receive a form but wouldn’t necessarily have a tax obligation.
The IRS is currently planning to change the threshold less dramatically in tax year 2024, from $20,000 to $5,000, with further plans to phase in the $600 reporting requirement outlined by the American Rescue Plan (ARP) afterward.
This delay in altering the threshold also coincides with major changes being made to individual taxpayer Form 1040 to make reporting easier. IRS Commissioner Danny Werfel believes the delays will help mitigate “unnecessary confusion” and “avoid problems for taxpayers, tax professionals and others in this area.”
Since nothing is changing for at least one more year, the most important thing for taxpayers to remember is they must report all earned income, whether it’s through online marketplaces and payment apps, or other means, on tax returns. The delay in changing the threshold does not alter this foundational requirement.
For small business owners who use these apps to receive payments but may not meet the current threshold to receive a 1099-K, thorough documentation is key. Keeping records of expenses and income in a bookkeeping tool will help avoid penalties or other negative implications down the line.
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The recently announced delay is welcome news for many who receive income from third-party payment platforms. While many will not be required to pay federal income tax for 2023, it is almost certain the IRS will implement changes in the future. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us.
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