We’re currently working our way through some of the essential information you need when reporting on Forms 1099. Today, we’re looking at Form 1099-K (Rev. January 2022), Payment Card and Third Party Network Transactions, diving into what the form is used for, and other useful tips!
What is Form 1099-K?
Form 1099-K is used to report payment card and third-party network transactions, or. for payments made in settlement of reportable payment transactions for each calendar year. The form was introduced as a direct result of the 2006 tax year when it was reported that Americans underpaid $450 billion in taxes! This led the IRS to focus its efforts on collecting third-party reporting information more accurately.
Unlike the other Forms 1099, this form has five different copies. Copy A goes to the IRS, Copy 1 is for the State Tax Department, Copy B is for the payee, Copy 2 is to be filed with the recipient’s state income tax return when required, and Copy C is for the filer.
Who has to file Form 1099-K?
Forms 1099-K are used by payment settlement entities (PSE) for payments made in the settlement of reportable transactions. A PSE is considered as having made a payment to settle a reportable payment transaction if the PSE submits instructions to transfer the funds to the account of the participating payee in order to settle such reportable payment transaction.
A PSE is either a domestic or foreign entity that is a bank or other organization that is contractually required to make and settle payments with participating payees. A participating payee is any person who accepts a payment card, including gift cards, as payment or accepts payment from any third party settlement organization (TPSO) as settlement of a third party transaction.
Payments to settle payment cards accepted as payment by payee who is related to the issuer of the payment card should not be reported on this form.
It’s also important to note that in their November 21 announcement, the $600 threshold for payment apps and online marketplaces to report payments on Form 1099-K is delayed 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.
When is the Form due?
The Form 1099-K is due to recipients by January 31, 2024. It is due to the be filed with the IRS by February 28, 2024, if paper filing, and if filing electronically, it is required to be filed by April 1, 2024 (the last day of March falls on a weekend).
What are the penalties for missing the deadline?
If a business fails to file or furnish an accurate Form 1099-K by the required deadline, the penalty ranges from $60 for up to 30 days late, with a maximum penalty of $630,500 per year ($220,500 for small businesses) to $310 after August 1 or if not filed at all, with a maximum penalty of $3,783,000 per year ($1,261,000 for small businesses). For tax year 2023, with forms due in 2024, the intentional disregard penalty is at least $630 per information return! Remember, there is no maximum penalty for intentional disregard.
The IRS also charges interest on penalties, where the interest amount varies by the penalty type and amount.
If you haven’t already, read our other articles diving into Forms 1099-NEC & 1099-MISC! And, don’t forget to sign up for our mailing list to receive a free whitepaper filled with tips to help you this reporting season.