IRS again delays $600 threshold for Form 1099-K


The IRS has issued guidance (Notice 2023-74) further postponing the new $600 reporting threshold for third-party payment networks under Section 6050W that had been scheduled to become effective for payments made in 2023.


Under the guidance, taxpayers will generally only be required to report 2023 payments for payees with more than 200 transactions and $20,000 in aggregated payments — the threshold in effect in 2022 under earlier transition relief. The IRS also said in an accompanying news release (IR-2023-221) that it intends to implement a threshold of $5,000 for payments made in 2024 as part of a final transition year.


The transition rules offer relief to many taxpayers whose reporting obligations were otherwise set to jump significantly. The payment reporting requirements under Section 6050W can affect a wide variety of platforms and services, including auction houses, consignment sellers and other applications and platforms that connect customers to sellers and service providers.


There is no de minimis exception for payment card reporting under Section 6050W, and third-party settlement networks may still be required to report at the $600 threshold for 2023 if backup withholding is required. Taxpayers should also be preparing to collect information and reporting on payments exceeding the $5,000 threshold in 2024. Legislation affecting the thresholds remains possible. More details on the relief are provided below.




Reporting requirements


Section 6050W generally requires payment settlement entities to report payment card transactions and third-party payment network transactions to sellers on Form 1099-K. There is no minimum threshold for payment card reporting, but third-party payment network transactions previously only needed to be reported for payees with more than 200 transactions and $20,000 in aggregated payments.


The American Rescue Plan Act of 2021 repealed this threshold and provided that reporting would be required for aggregate payments exceeding $600, regardless of the number of transactions. The change was originally meant to be effective for payments made in 2022, but Notice 2023-10 postponed the implementation until 2023. Notice 2023-74 now provides that the 200 transaction/$20,000 threshold will generally remain in place for payments made in 2023.


Under the relief, the IRS will not assert penalties under Sections 6721 or 6722 for failing to file a Form 1099-K or furnish a statement to a payee unless the payments exceed the 200 transaction/$20,000 threshold. However, payment settlement networks that have performed backup withholding under Section 3406(a) must still file both a Form 945 and a Form 1099-K if the total reportable payments to the payee exceed $600 for the calendar year.


Grant Thornton Insight:

Backup withholding is generally required if a payee does not furnish a taxpayer identification number (TIN) to the payment settlement entity or if the IRS has indicated there is a TIN mismatch. This backup withholding is required without regard to the de minimis reporting thresholds, and the payment settlement entity can be held liable for any failures. Taxpayers should apply backup withholding on any payees who have not provided a TIN, and perform withholding as may be required for incorrect TINs that are not remedied through the IRS’s B Notice process for such TIN discrepancies.


The IRS also said in a news release that it intends to apply a $5,000 threshold for payments made in 2024. This relief was not included in the notice itself, and will likely need to be formalized later. 


Grant Thornton Insight:

Legislation remains possible in this area. The additional transition relief may remove the urgency for lawmakers to act quickly, but there is significant bipartisan interest in permanently raising the $600 statutory threshold. There are several versions of legislation with various remedies, including bills that would restore the 200 transaction/$20,000 threshold, set a 100 transaction/$10,000 threshold, or create a permanent $5,000 threshold. Taxpayers should be preparing to perform reporting at the $5,000 threshold for payments made in 2024 until and unless legislation is enacted.




Next steps


The determination of whether Section 6050W or another reporting regime applies is often complex and can affect both the threshold at which reporting is required and who is required to report. Taxpayers may need to evaluate the relationships and contractual agreements between parties using their platforms, the specific payment chains for transactions, and any arrangements with payment processors.


All payment settlement entities should be preparing to perform reporting on 2023 payments using the adjusted thresholds, and should consider communicating the changes to users. The deadlines for reporting are quickly approaching. The Form 1099-K or an equivalent statement must be furnished to payees by Jan. 31, 2024, and must be filed with the IRS by the end of March 2024 if filing electronically. The thresholds for filing electronically have been reduced significantly. Taxpayers must generally file all 2023 information returns electronically if they have a total of 10 forms across all information return types.


Payment settlement entities should be preparing to collect the necessary information and perform reporting using a $5,000 threshold for 2024 payments. Taxpayers should also be aware of potential backup withholding obligations that apply without regard to the reporting thresholds for a missing or incorrect TIN.


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