On Nov. 26, 2024, the IRS issued Notice 2024-85, further postponing the implementation of the $600 Form 1099-K reporting threshold for third party settlement organizations (TPSOs), providing for two additional phase-in years before asserting penalties. The transitional relief means TPSOs, such as Venmo, Uber, eBay and Etsy, won’t be subject to the $600 threshold until four years after its intended enactment. The thresholds will be $5,000 and $2,500 for the 2024 and 2025 calendar years, respectively.
Change in 1099-K filing reporting threshold and previous delays in implementation
Prior to the American Rescue Plan Act of 2021 (ARPA), TPSOs were only required to issue a Form 1099-K to payees if the total dollar amount of transactions exceeded $20,000 and the total number of transactions exceeded 200. ARPA included a revenue raising provision that decreased the reporting requirements to a total dollar amount of $600 and removed the minimum transaction threshold, effective for the 2022 calendar year. This is the third time the IRS has delayed implementation. Previously the IRS provided the following relief:
- Calendar year 2022 – Notice 2023-10 announced that 2022 would be regarded as a transition period, allowing TPSOs to report based on the $20,000 and 200 transaction thresholds.
- Calendar year 2023 – Notice 2023-74 announced that 2023 would be regarded as a further transition period, again allowing TPSOs to report based on the $20,000 and 200 transaction thresholds. The News Release accompanying the Notice announced the IRS intended to use a $5,000 threshold for the 2024 calendar year in an attempt to phase-in to the $600 amount.
Calendar year 2024 and 2025 additional delays in implementation
Notice 2024-85 grants TPSOs two additional years of reprieve, though the accommodations are narrower:
- Calendar year 2024 – TPSOs must report payments on Form 1099-K for payees with aggregate payments in excess of $5,000, regardless of the number of transactions.
- Calendar year 2025 – TPSOs will be required to report payment on Form 1099-K for payees with aggregate payments in excess of $2,500, regardless of the number of transactions. The IRS has stated in the notice that this will be regarded as the final transition period.
The notice also states that penalties will not be assessed to a TPSO that failed to withhold and pay backup withholding tax in the 2024 calendar year.
Beginning in calendar year 2026, absent Congressional intervention, or a course reversal by the IRS, TPSOs will be subject to the $600 reporting threshold as authorized by ARPA. The prolonged transition period is intended to allow both TPSOs and payees to ease into the more burdensome $600 threshold.
Despite delays in implementation, the decrease from a $20,000 threshold in 2023 to $5,000 in 2024 will result in reporting to millions of additional payees. The IRS estimates that when the $600 threshold is finally in place they will receive approximately 44 million Forms 1099-K, which is more than triple the 14 million they received in 2023.
Criticism of the $600 threshold
There are three proposed bills that would raise the threshold to $5,000, $10,000 or $20,000. While there is bipartisan support for an adjustment, none of the bills have gained much traction to date. Republicans tend to favor the higher threshold of $20,000 while Democrats tend to prefer $5,000.
While a legislative fix could be part of a lame duck bill, it’s unlikely as the current Congress has numerous must-pass bills and very few legislative days remaining, as discussed in our November Policy Pulse. We could see an adjustment to the threshold in an eventual Republican tax reform bill in the 119th Congress but it will be just one more priority competing with an already extensive list of critical tax provisions.
If you have questions, please reach out to your Baker Tilly tax advisor.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.
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