Optima Tax Relief Announces Delay for New 1099-K Reporting Rules

The IRS announced that the new reporting thresholds for Form 1099-K have been delayed. The new thresholds are part of the American Rescue Plan of 2021. Optima Tax Relief breaks down the new reporting rules and why they are delayed until 2024.

Beginning January 1, 2023, third-party settlement organizations (TPSOs) were supposed to be required to report third-party network transactions paid in 2022 that exceed $600 through an annual Form 1099-K. However, due to concerns about lack of guidance, the existing IRS backlog, and taxpayer confusion, the IRS will delay the requirement until 2024. In other words, the original $20,000 and 200 transaction threshold will remain in place through the rest of this year.

This is an important thing to note for taxpayers who are also freelancers and small business owners, especially those who receive payments for goods and services via third-party payment networks like Venmo and PayPal. Taxpayers who collect payments with a third-party payment app should use the delay to become more familiar with the new reporting rules that will take effect in 2024.

They should also ensure that any non-business transactions received through these payment apps are correctly classified as personal transactions and not business transactions for goods and services. With the new rules taking effect, a single large transaction of $600 accidentally marked as a business transaction could trigger Form 1099-K to be generated and sent to the IRS at the end of the year. While this issue is correctable, it has to be done with the third-party payment network directly and the IRS will expect to see the reported income on the tax return until a correction is sent to them. This process could be time-consuming and cause further delays in processing a tax return. The safest bet to avoid this is to have separate accounts for personal use and business use.

Taxpayers should not worry about the new changes. As long as the income reported on a tax return matches all information that is sent to the IRS, there should be no issues. On the other hand, if numbers do not match up, it could trigger an audit with the IRS, which could in turn delay the processing of a tax return. Any money earned through freelancing, or a small business should be reported on a tax return, even if a 1099-K was not received.