On November 26, 2024, the IRS issued Notice 2024-85, providing a revised timeline for the transition to the $600 threshold in section 6050W(e), as amended by the American Rescue Plan Act of 2021, for third-party settlement organizations (TPSO) to file and furnish the Form 1099-K.1 The additional transition period is intended to facilitate an orderly transition for TPSO compliance with section 6050W(e) and participating payee compliance with income tax reporting. The IRS hinted at this additional transition relief in a payroll professional email in February 2024, but did not issue an official notice.
As originally enacted in 2008, a TPSO was not required to report third party network transaction unless a threshold of $20,000 and 200 transactions was met. In 2021, the reporting threshold was lowered to $600 with no transaction threshold.
In response to the 2021 legislation, TPSOs raised concerns regarding implementation of the lower threshold, including payee confusion. Legislation has been proposed to revert the threshold to $20,000 and 200 transactions, but has stalled in Congress. The IRS previously provided transition relief in Notice 2023-74 and Notice 2023-10, both of which provided for a threshold of $20,000 and 200 transactions.
The $600 threshold for filing and furnishing the 1099-K for payment card transactions is not affected by this transition relief.
Notice 2024-85 provides that:
- For calendar year 2024, a TPSO is not required to report on Form 1099-K unless the gross amount of aggregate payments to be reported exceeds $5,000, regardless of the number of such transactions. No penalties for failure to file or furnish Form 1099-K will apply if aggregate payments do not exceed $5000.
- For calendar year 2025, a TPSO is not required to report on Form 1099-K unless the gross amount of aggregate payments to be reported exceeds $2,500, regardless of the number of such transactions. No penalties for failure to file or furnish Form 1099-K will apply if aggregate payments do not exceed $2500.
- For calendar year 2026, the $600 threshold will be implemented. Penalties may apply for failure to file or furnish Form 1099-K if aggregate payments exceed $600.
- For calendar year 2024, the IRS will not assert penalties under section 6651 or 6656 with respect to a TPSO’s failure to backup withhold (if required under section 3406) and to pay backup withholding tax during the calendar year. If a TPSO actually backup withheld from a payee, it must file the Form 945 and file and furnish Form 1099-K to report the backup withholding, so the payee receives a credit on their tax return for the backup withholding.
- For calendar year 2025 and after, the IRS will assert penalties under section 6651 or 6656 with respect to a TPSO’s failure to backup withhold and pay backup withholding tax.
The IRS has developed a number of resources for recipients of the Form 1099-K, including FAQs to explain the purpose of the form and where to report gross proceeds and deductions on the Form 1040.2 Other IRS outreach includes a YouTube webinar.3 Even with the increased IRS resources, certain parties have expressed concern that it may not be clear to casual online sellers of used merchandise that, provided they can document the original purchase price of the item when new, they may realize a nondeductible personal loss, rather than a taxable gain, when selling online.
Several states have filing requirements for the Form 1099-K at a lower threshold than the federal transition threshold, including several states with $600 thresholders. States may also require direct filing of the Form 1099-K, in some cases even if the state participates in the combined federal-state filing program.
___________
1 A TPSO is a central organization that has a contractual obligation to make payment to payees in third party network transactions. See section 6050W(b)(3)
A third party payment network is any agreement or arrangement that (i) involves the establishment of accounts with a central organization by a substantial number of providers of goods or services who are unrelated to the central organization and who have agreed to settle transactions for the provision of goods and services with purchasers according to the terms of agreements; (ii) provides standards and mechanisms for settling such transactions; and (iii) guarantees payments to the providers of goods and services in settlement of transactions with the purchasers. See section 6050W(d)(3).
Form 1099-K reports the gross proceeds of any third party network transaction, without reduction for any fees, expenses or costs of goods sold. See section 6050W(a)(2).
2 See https://www.irs.gov/businesses/understanding-your-form-1099-k.
3 https://www.youtube.com/watch?v=Kb5dVhwAcV0&feature=youtu.be.
[View source.]
