Democratic lawmakers recently unveiled bills that would raise the de minimis reporting threshold for third-party settlement organizations under Section 6050W to $5,000. The move would partially reverse legislation from 2021 that reduced the reporting threshold to $600 beginning in 2022.
Section 6050W requires payment settlement entities to report payment card transactions and third-party payment network transactions to sellers on Form 1099-K. There has never been a de minimis threshold for payment transactions, but prior to 2022, payment settlement entities were only required to report third-party network transactions for payees with more than 200 transactions and $20,000 in gross payments.
The American Rescue Plan Act of 2021 (ARPA), however, repealed these thresholds and required reporting when payments exceeded $600 on any number of transactions, effective Jan. 1, 2022.
After hearing from constituents unhappy with the new threshold, Democratic lawmakers are now pushing legislation to raise the threshold. Reps. Cindy Axne, D-Iowa, and Chris Pappas, D-N.H., recently introduced the “Cut Red Tape for Online Sales Act” (H.R. 7079), which would raise the threshold to payees with $5,000 or more in payments regardless of the number of transactions. Companion legislation (S. 3840) was introduced in the Senate by Sens. Maggie Hassan, D-N.H., and Kyrsten Sinema, D-Ariz.
Both bills follow a December 2021 letter to House leadership by House Democrats asking for Congress to raise the threshold for 1099-K reporting for goods sold on marketplaces before the end of the year.
Dustin Stamper is a managing director in Grant Thornton’s Washington National Tax Office and leads the tax legislative affairs practice for the firm.
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