For those of you who have been on the edge of your seat about the Form 1099-K reporting changes, the official rule has been set as of December 23rd, 2022. If you enjoy selling items on Facebook, sending payments using Venmo or PayPal, or using a Third-Party Network for business transactions, stay tuned to the below information on what to expect.
In September, an article was posted to explain what Form 1099-K was and the changes that have been made to the reporting threshold for 2022 throughout the year. This article discussed the official status of those changes for 2022 taxpayers.
Prior to 2022, the monetary threshold to receive a Form 1099-K was $20,000 with 200 sales related transactions. If both of these requirements were met, then a Form 1099-K would be issued and received by the taxpayer to report as income on their tax return.
The 2021 American Rescue Act changed these requirements. The new threshold was set at $600 with no minimum number of transactions. This means that if you sell something on a platform, such as Facebook, for $600 or more, you receive a Form 1099-K that needs to be reported as income on your 2022 tax return.
There was also a bill that was introduced in Congress on March 15, 2022, to raise the threshold from $600 to $5,000. This bill was called the Cut Red Tape for Online Sales Act. For those of you who have been following, that was three different changes for the same tax form for 2022. You might be asking yourself, “Now, what is the actual rule of thumb for 2022?”
On December 23, 2022, the IRS announced a delay in the $600 minimum reporting threshold. This means that the third-party settlement organizations will not have to report the transactions on a Form 1099-K unless they follow the original threshold rules prior to the 2021 American Rescue Act.
The AICPA sent letters to the chairs and ranking members of the Senate Finance and House Ways and Means Committees expressing their concerns. They warned that the lower threshold would lead to significant confusion in the tax system over the next several months. They were also concerned that this would lead to misunderstandings for taxpayers and lead to a growth in the IRS correspondence and processing backlog.
Notice 2023-10 from the IRS announced it will regard the calendar year of 2022 as a transition period for the enforcement and changes made by the 2021 American Rescue Act. Returns filed for calendar years before 2023 are not required to report payments in settlement of third-party networks transactions unless the gross amount to be reported exceeds $20,000 and the number of transactions exceeds 200.
For years after 2022 it will enforce the $600 de minimis reporting threshold. The AICPA is continuing to call and try to convince Congress to raise the limit for consecutive years to $5,000 instead of $600 or institute a cost-of-living adjustment. Be sure to look out for information on the changes and differences for the 2023 tax year.
Below is a table to help keep these changes in order to make it easier to follow. Again, the 2022 tax year will proceed as normal with the original threshold limits of $20,000 with 200 or more transactions.
|Threshold Limit||Number of Transactions|
|Original Threshold – 2020||$20,000||200+|
|American Rescue Plan Change – 2021||$600||1+|
|Cut Red Tape Proposed Change – 2022||$5,000||200+|
|Official Ruling as of 12.23.2022||$20,000||200+|
If you would like to talk to one of our professionals in our Entrepreneurial Support & Client Accounting Segment on this topic or any other business-related topic, please do not hesitate to contact us.