On 2/6/24, the IRS released new and updated FAQs regarding Form 1099-K 2023 given that on November 21, 2023 (via Notice 2023-74) the IRS announced that calendar year 2023 would also be a transition year for third party settlement organizations (TPSOs). This means that the IRS again delayed the effective date of the $600 threshold (regardless of the number of transactions) for Form 1099-K 2023 reporting for TPSOs and will treat 2023 (to be filed in 2024) as another transition year in order to reduce taxpayer confusion and continue working through the implementation of this new law. Taxpayers will need to use their Form 1099-K with other tax records to help figure and report their correct income on their tax return.
Currently, IRS is planning to phase in a new reporting threshold starting with a $5,000 for tax year 2024 (to be filed in 2024). Of note, taxpayers ought to keep in mind that third party information reporting for certain payments is required by law and has been shown to increase voluntary tax compliance, improve tax collections and assessments within the IRS, and thereby reduce the tax gap.
A TPSO is the central organization that has the contractual obligation to make payments to participating payees (generally, a merchant or business) of third-party network transactions. An example could include apps used to handle the money transfer between buyers and sellers.
Form 1099-K is not for purchases
If a taxpayer buys an item with a payment card or payment app or uses an online marketplace, a taxpayer will not receive a Form 1099-K (the form is only used to report certain payments that a taxpayer received for selling goods or providing services).
When friends or family send money for gifts and reimbursements
Money sent through a payment app between family and friends that is not payments for goods or services should not be reported on a Form 1099-K.
What Taxpayers need to know about Form 1099-K 2023 from the new IRS FAQs
- Form 1099-K (Payment Card and Third-Party Network Transactions) is an information return that popular payment apps and online marketplaces use to report payments a taxpayer receives during the year from: Credit, debit or stored value cards such as gift cards (payment cards) and Payment apps or online marketplaces for goods or services or TPSOs.
- Taxpayers should receive a Form 1099-K if they sold a good or provided a service and were paid a gross amount in excess of the reporting threshold through a payment app or an online marketplace or accepted a payment from a payment card. Taxpayers may have a tax obligation if they had a gain on the sale or received payment for services they provided.
- For payment cards, there is no threshold amount that has to be met to receive a Form 1099-K due to payments received through a payment card transaction. Therefore, if a taxpayer received $0.01 of payments from a payment card transaction, a taxpayer should receive a Form 1099-K for those payments.
- The term “payment card” includes credit cards, debit cards, and stored-value cards (including gift cards), as well as payment through any distinctive marks of a payment card (such as a credit card number). A payment card is issued according to an agreement that provides all of the following: one or more issuers of the cards; a network of persons unrelated to each other, and to the issuer, who agree to accept the cards as payment; and standards and mechanisms for settling the transactions between the merchant acquiring entities and the persons who agree to accept the cards as payment.
- Form 1099-K reporting threshold doesn’t affect whether payments are taxable or whether a tax return must be filed. All income, no matter the amount, is taxable unless the tax law says it isn’t – even if you don’t get a Form 1099-K. Income also includes amounts not reported on forms, such as payments you receive in cash, property, or services.
- The gross payment amount (Box 1a) on Form 1099-K reports the total, or gross, dollar amount of reportable payment transactions. It doesn’t include adjustments for fees, credits, refunds, shipping, cash equivalents or discounts. Those items are not income. Taxpayers can deduct those items from the gross amount when including the income on their tax return.
- Just because a payment is reported on a Form 1099-K does not mean it is taxable. Also, just because a payment is not reported on a Form 1099-K does not mean it is not taxable.
- A taxpayer who sells a used personal item for less than they paid for it may receive a Form 1099-K, but the sale proceeds do not increase their taxable income because they didn’t make a profit, or gain.
- Whether you are in the trade or business of selling/renting property or providing services may determine the amount of the proceeds that are taxable.
- Payments of gifts and reimbursements for shared costs are not payments for goods or services and therefore are not reportable on Form 1099-K.
- Taxpayers may receive a Form 1099-K for money raised through crowdfunding. Some money raised through crowdfunding may be taxable to the taxpayer, and the taxpayer may be required to report it on their income tax return. However, some money raised may be considered a gift and would not be taxable.
- If the taxpayer is living abroad and receives a Form 1099-K, the taxpayer is still required to report the amount included on the form. The rules for filing income tax returns and making estimated tax payments are generally the same whether the taxpayer is in the United States or abroad if the taxpayer is a U.S. citizen or resident alien (generally subject to tax on worldwide income from all sources and must report all taxable income and pay taxes according to the Internal Revenue Code).
IRS warns taxpayers that while the reporting threshold remains over $20,000 and 200 transactions for 2023, companies could still issue the form for any amount
IRS also states that the higher threshold does not affect the actual tax law to report income on a taxpayer’s tax return. All income, no matter the amount, is taxable unless it’s excluded by law whether a Form 1099-K 2023 is sent or not.
Form 1099-K is reported to the IRS. Taxpayers that do not include the information provided on Form 1099-K on their tax return run the risk of owing additional taxes on unreported income and receiving retroactive charges, penalties, and interest from the IRS. In addition, not reporting earnings correctly puts a taxpayer in a potential audit risk situation.
Best to consult a Tax Preparer with Form 1099-K 2023 experience.
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