Relax and rejoice: IRS has Announced Form 1099-K Tax Reporting Delay

02/01/2023 / by Fazeela

Tax season is going to be a little less overwhelming than anticipated — thanks to the IRS delaying the implementation of the 1099-K $600 reporting threshold for another year.

It’s the same story after every holiday season. The dread starts creeping in right from the dawn of the new year. Business owners and tax preparers both bury themselves under hundreds of forms and plague-like stress. 2023 tax time was expected to bring double that stress due to the potential onslaught of 1099-K forms.

But much to our relief, the IRS decided to hold off on the new reporting rule for another year. The agency announced right before Christmas last year that the 2022 tax year will be the transition period and the new rule will only take effect from January 31, 2024.

What does the 1099-K reporting delay mean?

Payment services such as PayPal, Venmo, CashApp and other Third-Party Settlement Organizations (TPSO) are required by the IRS to issue annual Form 1099-K. In March 2021, Congress changed the reporting rules and lowered the minimum reporting threshold to any amount exceeding $600. So, all individuals whose one or more business transactions were over $600, would receive Form 1099-K from these payment platforms.

This meant a potential blitz of forms, overwhelming pressure, and a crippling amount of confusion. After receiving heaps of public complaints, the IRS announced delaying the implementation of the lowered threshold by a year.

This means that the before-mentioned platforms won’t have to use the $600 threshold while reporting this year’s transactions on Form 1099-K. They will adhere to the old threshold and report transactions for a participating payee if they exceed an aggregate amount of $20,000 and the number of transactions is over 200.

Why did the IRS delay the new rule?

Businesses had expressed deep concerns and confusion about the procedure to report payments on Forms 1099-K. Since the threshold is so low, even a personal expense incorrectly filed under business payments would trigger a form. This could mean reporting errors leading to potential audits.

The staggering lack of information and guidance also had the taxpayers worried. Thankfully, the IRS listened to the complaints and realized that the transition period was necessary.

The Acting IRS Commissioner Doug O’Donnell stated in an official announcement, “To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”

What should you do as a taxpayer?

For starters, stop panicking. The floodgates of forms won’t open. During this transition period, continue tracking and keeping records of all the payments received from online payments apps.

The delay is only for the 2022 tax year and does not change the taxability of income. However, if you’ve already received a 1099-K, the IRS is working to provide instructions and clarity so that taxpayers understand what to do.

We hope that this tax season goes smoothly for you (we all get a few little challenges here and there). In the meantime, we’ll be here working hard to keep bringing you new functionality at Fitli to help you run your business better.

Tags: 1099-K threshold, 2022 Tax Year, fitli news, Forms 1099-K, IRS, Online payments, Tax Season