IRS Form 1099-K - The New Reporting Rule

Unless Congress acts this year to change the rule it enacted with the adoption of the American Rescue Plan Act of 2021, more information reporting will be required of certain third-party payment networks. Beginning this year, payment card companies, payment apps and online marketplaces such as PayPal, Amazon, Venmo and eBay, must file IRS Form 1099-K with the IRS and send a copy of the form to payees if the payee is paid more than $600 a year for goods or services from such third-party payor. These rules were initially designed to take effect in 2022, but late that year the IRS delayed their start indicating that the action was taken to help smooth the transition and ensure clarity for taxpayers, tax professionals and the industry. As you might expect, the new rule has created quite a bit of confusion among taxpayers and tax professionals.

This new rule is a drastic change from the old rule as the old rule only required a 1099-K to be issued to payees with over 200 transactions and who were paid more than $20,000. Many commentators and tax professionals are hoping Congress acts before the end of the year to relax this new rule. There seems to be bipartisan support in Congress to change the rule. Recently, House Republicans introduced a bill that would bring back the old rule. This is a start although we believe it is unlikely the new rule will be repealed in its entirety.  It is more likely that the rule is relaxed to where the value of the transactions that need to be reported is raised and the number of transactions needed to meet the reporting threshold is increased.

If no changes are made this year, what will happen is that more people than ever will receive Form 1099-K because the new rule lowers the threshold for Form 1099-K reporting. Many more people, including casual sellers and those who have a part-time job or gig, or who own a small business, who have not received a 1099-K in the past will receive one for 2023.

Even though you may receive a Form 1099-K this year and have not received one in prior years, the receipt of the form does not change the underlying transaction nor your obligation to report income on your tax return.  Importantly, personal transactions are not considered payments for goods or services and therefore payments to you that were gifts or personal payments from a family member are not subject to the reporting rule.

We know there is a lot of confusion about this new reporting rule, and we hope this blog helps to clear some things up for you. If you have questions and want to talk with us further, please call us at 513-271-6777. For more THOR reading, click here to go to the Blogs and Market Updates section on our website.

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