The reporting thresholds for third-party settlement groups were supposed to go into effect for the upcoming tax filing season, but the Internal Revenue Service today announced a postponement.
Due to this postponement, third-party settlement companies won’t be required to report tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the lower, $600 threshold amount implemented as part of the American Rescue Plan of 2021.
To that end, the IRS today issued advice emphasising the fact that the calendar year 2022 would serve as a transitional period for the implementation of the lowered threshold reporting for third-party settlement organisations (TPSOs), which would have produced Form 1099-Ks for taxpayers.
Acting IRS Commissioner Doug O’Donnell stated that “The IRS and Treasury received a number of concerns regarding the timeframe of implementation of these adjustments under the American Rescue Plan.” “The IRS will postpone putting the new 1099-K regulations into effect in order to facilitate the transition and guarantee clarity for taxpayers, tax experts, and business. The extra time will help clear up any misunderstandings during the next 2023 tax filing season and provide taxpayers more time to prepare for and comprehend the new reporting obligations.”
The TPSO reporting level was modified under the American Rescue Plan of 2021. The threshold for commercial transactions has been reduced from more than 200 per year and more than $20,000 in total transactions to $600 per year. Personal transactions like splitting the cost of a meal or a vehicle ride, giving gifts for birthdays or holidays, or paying a relative or friend to pay a household bill are not covered by the law.
A TPSO is obligated by law to report third-party network transactions paid in 2022 to any participating payee that exceeds a minimum threshold of $600 in aggregate payments, regardless of the number of transactions, starting January 1, 2023. Individual payees get IRS Form 1099-K, Payment Card and Third-Party Network Transactions, which TPSOs use to report these transactions.
The transitional period outlined in Notice 2023-10PDF postpones the reporting of transactions totaling more than $600 to those that take place after the calendar year 2022. The goal of the transition phase is to ensure that both individual payee compliance with income tax reporting requirements and TPSO tax compliance transfer smoothly. Any person who receives payment from a third-party settlement organisation for a commercial transaction is a participating payee in the context of a third-party network transaction.
Because tax compliance is higher when amounts are subject to information reporting, such as the Form 1099-K, the law’s modification is of utmost importance. To make sure that 1099-Ks are only sent to taxpayers who need to receive them, the IRS cautioned that it must be carefully handled. Additionally, it’s critical that taxpayers comprehend what to do in response to this reporting, and tax preparers and software providers have the knowledge necessary to support taxpayers.
Soon, more information to assist taxpayers and the industry as well as further details on the delay will be made available. The IRS is working quickly to give guidance and clarification so that taxpayers understand what to do for those who may already have gotten a 1099-K as a result of the statutory changes.
The IRS also stated that the current reporting level for Form 1099-K, which is $20,000 in payments from more than 200 transactions, will continue to be in place.
(Source Credit: This Article was originally published by IRS News on December, 23rd 2022.)