Form 1099-K: IRS Updates to FAQ’s

Tax reporting season often comes with its fair share of confusion and questions, especially for those dealing with more complex tax forms. On February 6th, the Internal Revenue Service (IRS) took steps to alleviate some of these concerns by revising the frequently asked questions (FAQs) for Form 1099-K, Payment Card and Third Party Network Transactions.

The FAQ is updated in light of the IRS  November 21 announcement, delaying the $600 threshold requirement for payment apps and online marketplaces to report payments on Form 1099-K for the tax year 2023. For 2023, the current reporting threshold remains in effect at $20,000 or more in qualifying receipts and more than 200 transactions. The IRS is planning to phase in the new thresholds and announced a threshold of $5,000 for tax year 2024, something to keep in mind.  

If you are looking for even more guidance on the form, we’ve broken it down further in our article here.

Below is the full announcement as published by the IRS.

IRS revises and updates frequently asked questions about Form 1099-K

WASHINGTON — In an effort to provide more resources for taxpayers during this filing season, the Internal Revenue Service today revised frequently asked questions (FAQs) for Form 1099-K, Payment Card and Third Party Network Transactions, in Fact Sheet 2024-03PDF.

The revised FAQs provide more general information for taxpayers, including common situations, along with more clarity for industry and what organizations should send Forms 1099-K. The FAQs are in addition to a recently updated Understanding your Form 1099-K on page and other communications resources.

Following feedback from taxpayers, tax professionals and payment processors and to reduce taxpayer confusion, the IRS announced on Nov. 21, 2023 in Notice 2023-74 to delay the new $600 Form 1099-K reporting threshold for third party settlement organizations for calendar year 2023.

As the IRS continues to work to implement the new law, the agency is treating 2023 as an additional transition year, which applies to taxes filed this year. As a result, reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023, although taxpayers may still receive a form for amounts less than the required reporting amount.

The updates to the FAQs contain substantial changes within each section; we have highlighted a few noteworthy updates below:

General Information

  • Q2 – Is there a threshold amount that has to be met before I would receive a Form 1099-K? (updated Feb. 06, 2024)
    • There is no threshold amount for payments received through a payment card transaction. This means that if you received a payment of only $.01 from a payment card transaction, then you should receive a corresponding 1099-K for that payment. For 2023, in response to a recent Notice issued by the IRS, the threshold totaling more than $20,000 and for which there are more than 200 transactions for a payee remains in effect. The new threshold totaling more than $600 regardless of the number of transactions for a payee will take effect for 2024.
    • Comply Comment: If not already doing so, organizations should be preparing for this impact as a number of additional payees will be brought into scope for identity verification and reporting purposes.

What to Do If You Receive a Form 1099-K

  • Q8 – How does a payment app or online marketplace know if I receive payments for goods or services versus money from friends and family? (added Feb. 06, 2024)
    • Every payment app or online marketplace will have its own process for characterizing the income/payments that it makes. It is important to understand the nature of the income being paid, and as a taxpayer, maintain accurate records distinguishing between payments for goods and payments for services.
    • Comply Comment: Characterization of income is critical to understand what you are being paid or for the payor, what you are paying. Understanding the nature of the payment being made outlines the path for correct information withholding and reporting.

  • Q9 – Why did the ticket sale app or online marketplace ask for my social security number? (added Feb. 06, 2024)
    • Payment app and online marketplaces will track gross sales in order to report those gross sales to the IRS (this is where threshold limits become important) and to the payee on a Form 1099-K. When reporting to the IRS, the payee’s SSN (or ITIN or EIN) is required to be reporting on the Form 1099-K. Not providing a taxpayer identification number can result in backup withholding.
    • Comply Comment: Payee identity collection and verification is critical as it paves the way for accurate information withholding and reporting. Electronic form collection and validation will allow you to seamlessly collect IRS Forms W-9, with automated TIN validation; not collecting accurate TINs from your payees can result in backup withholding. If the payor does not perform backup withholding when required, then they themselves are liable to pay and remit to the IRS.

Common Situations

  • Q1 – Will my child get a Form 1099-K if I send them money using payment apps? (added Feb. 06, 2024)
    • Your child should not expect to receive a Form 1099-K if the transaction conducted via a payment app does not involve the sale of goods or the provision of services. The Form 1099-K is used to document payments received for goods sold or services rendered. Money transferred between family members or friends through a payment app, unrelated to goods or services, does not necessitate reporting on a Form 1099-K.
    • Comply Comment: Using payment apps, like Venmo, for example, between friends and family may not require Form 1099 reporting, but it is a best practice to document payments received and sent, and of course being mindful of gift limit! Even if not reported on the Form 1099-K, some payments could result in taxable income on your personal income tax return.

Third Party Filers of Form 1099-K

  • Q1 – Can Forms 1099-K be filed electronically? (updated Feb. 06, 2024)
    • Forms 1099-K can be filed electrically through either the Information Returns Intake System (IRIS) or the Filing Information Returns Electronically (FIRE) system. If you are required to file 10 or more Information Returns (across all Forms 1099 and 1042-S, for example) during the calendar year, then you must file those Information Returns, including the Forms 1099-K, electronically.
    • Comply Comment: To file Information Returns electronically, you will need the necessary permissions and Transmitter Control Codes in place; otherwise, you will need to look at service providers to perform reporting and your behalf.

Should My Organization Be Preparing, Filing and Furnishing Form 1099-K?

  • Q1 – I am trying to determine if my organization is a third party settlement organization (TPSO). What are the characteristics of a third party payment network? (updated Feb. 06, 2024)
    • The IRS outlines the following as characteristics of a third party payment network:
      • The existence of a central organization with whom a substantial number of providers of goods or services (who are unrelated to the central organization) have established accounts;
      • An agreement between the central organization and the providers of goods or services to settle transactions between the providers and purchasers;
      • An agreement for standards and mechanisms for settling such transactions; and
      • The guarantee of payment in settlement of such transactions.
      • Comply Comment: As mentioned above, for 2023 TPSOs are required to report the gross payments associated with reportable transactions where the payee has received payments of more than $20,000 and for more than 200 transactions. With the threshold amount and volume changing this year, TPSOs can expect an increased number of payees to be brought into scope and reportable to the IRS. TPSOs should begin, if not already, looking at their own processes and procedures to determine how best to handle this increase in volume, whether it be manual or automated processes to collect IRS Forms W-9 and report on Forms 1099.

More information about taxpayer reliance on guidance published in the Internal Revenue Bulletin and FAQs is available.

1099-K FAQ Update

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This document contains general information only and is not a substitute for accounting, tax, or any other professional advice or services. The information provided is considered accurate at the time of publishing and will not be updated with new regulation requirements.

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