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  • Brittany Besler

1099-K Third Party Reporting Delay Does Not Change The Tax Implications

Updated: Dec 7, 2023

The IRS announced and released today Notice 2023-74, read their announcement here, this

notice provided a further transition period for the requirement placed on third-party payors by the

American Rescue Plan Act (ARP) of 2021. As you may remember the ARP implemented a lower $600

Form 1099-K reporting threshold for third-party settlement organizations. The IRS announced last year that the 2022 year would be treated as a transition period and did so again for this year (Happy

Holidays from the IRS).


Bottom Line: This means that again third-party reporting will only be required if the taxpayer

receives over $20,000 and has more than 200 transactions in 2023.


Further changes are coming though, the IRS has stated that they will use the additional time to continue to find ways to minimize the burden on taxpayers and make the transition as seamless as

possible. Due to the large change the future reporting, the IRS is planning to implement a threshold of

$5,000 for 2024 as part of a phase-in to the implementation of the $600 threshold. It is also important to note that it does not provide the transition relief for provisions relating to payment card transactions (of which there is no threshold), or if there is any required backup

withholding.


This news is welcome by taxpayers and tax professionals alike. The $600 threshold has the potential to result in millions (the IRS estimate is 44 million) of unnecessary Forms 1099-K, potentially including personal transactions.


The Threshold DOES NOT change the Tax impact

The reporting requirement for third parties does not change the tax implications of a

transaction, and Clients are encouraged to speak to their trusted tax advisors to make these

determinations. The 1099-K is merely information that the third party is required to furnish to the

taxpayer and the IRS in an effort to encourage voluntary compliance with tax laws. T

The IRS reminded taxpayers that reporting requirements do not apply to personal transactions

such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or

another for a household bill. These payments are not taxable and should not be reported on Form 1099- K.


However, the casual sale of goods and services, including selling used personal items like

clothing, furniture, and other household items for a loss, could generate a Form 1099-K for many

people, even if the seller has no tax liability from those sales. This can be confusing to taxpayers.

And transactions in the course of business will be reportable on Form 1099-K if they reach the

threshold.


While the result is good news for taxpayers and tax professionals, the delay is merely in the

reporting obligation, and not the individual taxpayer’s obligation. Taxpayers are always required to

report any taxable income, whether it is paid in cash, credit, debit, ACH, or even cryptocurrency. It is

important to have a trusted advisor to analyze and consult on how this may impact you, and if you do

receive a 1099 it is important to report that correctly.


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