Relief From Stringent 1099-K Reporting Requirements

I recently posted about new filing requirements that would require transaction processors such as Venmo and Paypal to issue a Form 1099-K to anyone with transactions totaling over $600 for the year.  These rules are meant to capture business transactions to promote tax compliance.  However, it is widely feared that many people would receive this 1099-K for what are actually personal transactions, such as receiving reimbursement from a friend for a meal. 

The IRS also receives the 1099-k and would be expecting to match up the amount to our individual tax returns.  If the number is not shown on our tax return as income, then we would receive a letter from the IRS assuming we have underreported income.  I believe this would be a huge waste of time for the IRS and very frustrating for individual taxpayers. 

Fortunately, the IRS was willing to listen to the many voices of reason encouraging them to delay and rethink these new rules.  On November 21, the IRS announced they will not implement these reporting requirements for tax year 2023.  So, for now we have the same parameters that have been in place for several years.  Anyone who receives over $20,000 and has more than 200 transactions with a third-party transaction processor should receive Form 1099-K for tax year 2023.

The IRS is considering phasing in the new rules with a $5,000 reporting threshold for tax year 2024.  IRS Commissioner, Danny Werfel, said in a news release, “Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion as we continue to look at changes to the form 1040.  It’s clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals, and others in this area.”    

The strict reporting threshold of $600 was first enacted by the American Rescue Plan Act of 2021 to be effective for tax years starting after December 31, 2021.  This is the second consecutive year the new requirements have been delayed.  Hopefully we will see a commonsense application of the law that will not be such a burden on taxpayers, tax professionals, or the IRS.