The IRS has announced a delay in the implementation of lower reporting thresholds for third-party settlement organizations (TPSOs), originally set to begin for the 2022 tax year. This means TPSOs are not required to report transactions below $600 on Form 1099-K to the IRS or to payees this tax season. However, the IRS intends to eventually enforce these reporting requirements for 2022 transactions.
In response to concerns raised about the timeline for implementing these changes under the American Rescue Plan, the IRS has provided guidance declaring 2022 as a transition period. This delay aims to minimize confusion during the upcoming 2023 tax filing season, allowing more time for taxpayers, tax professionals, and industry stakeholders to prepare for and understand the new reporting rules.
Under the law, starting January 1, 2023, TPSOs must report transactions exceeding $600 annually to the IRS and payees via Form 1099-K. This requirement applies to all business-related transactions, excluding personal transactions such as shared rides, gifts, or household bill payments.
The IRS emphasizes the importance of accurate reporting to enhance tax compliance but acknowledges the need for careful management to ensure 1099-Ks are issued only where necessary. Further details and instructions will be provided to taxpayers and the industry in the near future to facilitate compliance during and after the transition period.
If you’d like more information, or to prepare for this change, please contact your ShindelRock tax professional. [1]