IRS Delays Full Implementation of Lowered 1099-K Filing Threshold Until 2025
- Dec 19, 2023
Users of apps like Venmo and PayPal are breathing a sigh of relief after the IRS announced further delays in the full implementation of a new law that requires reporting at much lower thresholds until 2025. The American Rescue Plan Act of 2021 significantly lowered the reporting threshold for these payments from $20,000 to $600 and eliminated the minimum transaction number of 200. Under that law, the effective date of the change was January 1, 2022; however, the IRS delayed the implementation of the law for one year. On November 21, 2023, the IRS announced it would further delay the full implementation of the law.
Form 1099-K is filed to report any payments a taxpayer received for goods or services through credit, debit, or stored value cards (i.e., gift cards), or through payment apps or online marketplaces.
Some of the popular apps that are will be impacted include:
The IRS has also advised that some other online service providers such as Uber or Lyft, AirBnB, and eBay could also be impacted by these changes.
Purpose of the Change
The stated rationale for lowering the threshold is to increase compliance. The IRS relies on information returns such as Form 1099-K to help identify income that may not have been reported by taxpayers. It is estimated that an additional 30 million information returns will be filed under this lowered threshold, which in turn provides the IRS more opportunities to identify unreported income.
(Note: This should not be confused with the e-filing threshold requirements impacting information returns for the 2023 filing season, including Forms 1099.)
Transition Period and Implementation Delay
2023 will be another transition year for the new threshold. As with the delay in 2022, information returns for calendar year 2023 will not be subject to the lowered reporting threshold. Additionally, the IRS proactively announced that 2024 will also be a transition year. Information returns for calendar year 2024 will be subject to a lowered reporting threshold of $5,000.
Calls for Congressional Repeal
Many professionals have called upon Congress to completely repeal the provision. There have been several concerns about the impact the new law could have on taxpayers, including receiving incorrect 1099-Ks and lack of knowledge of the new threshold due to poor educational campaigns.
Several bills have been introduced in Congress that contain provisions that would repeal the change, but none have passed. With the IRS further delaying the implementation, Congress currently has little incentive to pass any provisions that would repeal the lowered threshold.
The transition should provide taxpayers the necessary time to better prepare for the lowered threshold. Pressure will be continued to be placed on Congress to revert to the former law; however, taxpayers should assume the law is here to stay and prepare for the full implementation in 2025.
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Sarah E. Adkisson
Sarah E. Adkisson, Senior Manager of Tax Publishing, with nearly a decade of tax experience, provides invaluable thought leadership support to the firm's national tax team through her clear and concise articulation of complex tax topics.
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