IRS Delays Updated 1099-K Reporting

The IRS (rightly) decided to delay the new 1099-K reporting requirements for Third Party Settlement Organizations (such as Paypal, Venmo and CashApp). When the IRS initially announced the reporting threshold would be reduced from $20,000, to $600, it raised concerns from taxpayers, tax professionals and payment processors. Now, the IRS realized it is not ready to process the number of 1099-Ks that would be issued due to the new reporting requirements.

This is great news for taxpayers (and tax professionals), as it gives everyone another year to prepare for the influx of forms. A majority of taxpayers that would have been issued 1099-Ks would have received them for nontaxable income (such as a sale of personal items or withdrawals from online gaming sites). While these transactions would not result in additional tax, it still requires additional reporting and disclosure on your tax return. 

This is also a relief for the IRS. There are still over 10 million unprocessed tax returns sitting in IRS facilities across the country. Implementing these new guidelines would increase the number of taxpayer inquiries and lead to an even larger workload. Hopefully, the IRS is able to clear some of its backlog in the next 12 months and will have more capacity to address taxpayer concerns with the new reporting requirements.

It is important to note that the IRS does not create tax laws, it simply enforces them. In this instance, the IRS is, essentially, breaking the law by postponing the 1099-K mandate. It is believed that the IRS is delaying the implementation so new legislation can be passed in 2023, which could affect the reporting thresholds again. As 2023 progresses, and Congress is back in session, we will know when the updated reporting requirements will be in effect, or if new legislation will supersede these guidelines.

For now, we will assume the $600 threshold will be implemented for the 2023 tax year.