The IRS’s delay in implementing the revised reporting thresholds for Form 1099-K, Payment Card and Third-Party Network Transactions has been extended again for the 2024 filing season (Notice 2023-74).
On November 21, 2023, the agency also announced plans to phase in the implementation of the American Rescue Plan Act’s (ARPA) provision for the 2025 filing season by reducing aggregate payments exceeding $20,000 to $5,000 during the 2024 calendar year.
At present, it makes no mention of the status of the 200-transaction threshold for reporting. There is no reporting delay for those third-party network transactions that were subject to federal backup withholding during the 2023 calendar year.
ARPA lowered the reporting threshold for third-party network transactions from aggregate payments exceeding $20,000 to aggregate payments exceeding $600 during the calendar year and eliminated entirely the 200-transaction threshold for reporting. The IRS will use Form 1099-K data to verify and improve tax compliance.
The Internal Revenue Code requires payment settlement entities to report certain transactions on Form 1099-K. The type of payment settlement entity determines the reporting requirements. Payment settlement entities can be either a merchant acquiring entity, such as a bank or credit card company, or a third-party settlement organization (TPSO), such as PayPal, Venmo and CashApp, to name a few.
Third-party settlement organizations, more commonly known as peer-to-peer payment platforms and digital wallets, generally function as intermediaries between buyers and sellers of goods and services, charging a fee for the service.
A merchant-acquiring entity must report the gross amount of all payment card transactions regardless of the amount and/or number of transactions, while a third-party settlement organization is required to report the gross payments to participating payees for goods and services once the ARPA lower reporting thresholds are met.
Financial institutions offer a wide array of services to allow individuals and businesses to make and receive payments. Whether arrangements involving electronic checks, bill-paying services or other electronic payment acceptance products fall within the statutory definition of “third-party payment network” depends on the facts and circumstances.
A participating payee is an individual or any type of business who accepts payment cards as payment or made by a TPSO on behalf of a purchaser or customer for goods and services.
A payment card transaction is any digital transaction where a payment card or any account number or other identifying data associated with a payment card is accepted as payment. A payment card transaction is not an ACH, EFT or direct deposit, which could be reportable on Form 1099-NEC by the payer.
The Form 1099-K reports the annual and monthly goods and service gross transaction amounts, the number of transactions and any federal or state withholding.
While many members of Congress support returning the filing thresholds to pre-ARPA amounts and transaction numbers, it remains unclear whether there is sufficient support and time to enact changes before the 2024 filing deadline.
Form 1099-K, with the lower ARPA filing thresholds, is due to individual or business recipients on or before January 31 of the year following the processing of reportable transaction(s) and to the IRS on or before March 15, if filed electronically.
Significant penalties and liability for tax might apply for failure to comply in a timely manner with Form 1099-K reporting requirements.
How Wipfli can help
Wipfli tax professionals have deep experience supporting the information reporting needs of the financial services industry.
We can answer your questions and provide insights about how the lower 1099-K reporting threshold may affect your organization. Contact our team to learn more.
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