The IRS issued an announcement on December 23, 2022 that caused a massive sigh of relief from third-party settlement organizations everywhere (as well as from tax preparers and small businesses): A planned increase in reporting requirements for Form 1099-K was delayed from 2022 to 2023.
For a little background, the IRS defines a third-party settlement organization (TSPO) as an organization that facilitates payments, usually to merchants, through a third party network. These include auction-payment facilitators (think PayPal) or other merchant services providers (think American Express, Visa or other organizations that process credit card payments to businesses).
Prior to the American Rescue Plan of 2021, these TSPOs had the obligation to report payments to merchants on Form 1099-K only if they processed payments to those merchants that exceeded $20,000 or 200 transactions for the year.
As you can imagine, with such thresholds ($20,000 or 200 transactions per year), many smaller businesses, who had few customers paying them by credit card, fell below the reporting requirements. In such cases, TSPOs were not required to report to either the merchant or the IRS.
However, the American Rescue Plan of 2021 changed this threshold to a mere $600 (most likely to better line up with the current reporting thresholds for Forms 1099-MISC and 1099-NEC). And this threshold was supposed to go into effect January 1, 2023 for 2022 transactions.
Now TSPOs would be required to give a Form 1099-K to any merchants who received $600 total during the year for goods and services. And TSPOs would also have to file these forms with the IRS.
Suddenly TSPOs were facing much higher reporting requirements, and small merchants would be receiving forms that they had not previously received and might not know what to do with.
This was almost guaranteed to cause chaos and confusion for the 2023 filing season.
Enter some wisdom at the IRS: The IRS actually heard the misgivings of taxpayers, tax professionals and businesses and decided to delay the change in reporting requirements for Form 1099-K by one year.
Now, according to Notice 2023-10, there will be extra time to transition into the new reporting requirements. The new $600 threshold will now apply to 2023 transactions (which will be reported in 2024). The old thresholds of $20,000 or 200 transactions will continue to apply for 2022 transactions, thus simplifying the reporting for the quickly-approaching 2023 filing season.
TSPOs, small businesses and tax professionals now have additional time to ensure accurate reporting, and clarity on what to do with the new 1099-Ks, as the IRS continues to issue instruction and guidance during the upcoming year.
So you won’t be receiving as many Forms 1099-K to deliver to us during tax time as we originally thought. Enjoy this gift from the IRS and have a Happy New Year!