Almost a month after the IRS warned Americans to report transactions over $600 from 3rd party facilitators, the IRS announced the reporting threshold for third-party payments has been delayed and wouldn’t take effect during next year’s tax season.
The $600 reporting threshold became law in the $1.9 trillion American Rescue Plan of 2021, and has not been rescinded. Under the current system, payment processors must report to the IRS the names of individuals who have received more than 200 payments in a year, exceeding $20,000 in total. The new standard is a total of $600, with no minimum on the number of transactions. The requirement affects people who use sites like PayPal or Venmo.
“We do not report friends and family transactions like splitting the bill on something. Payments have to be sent as ‘goods and services’ for us to consider these under this rule,” Joseph Gallo, a spokesperson at PayPal, the parent company of Venmo, told USA Today.
Official Announcement on Delay
According to the official announcement, “The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan,” said Acting IRS Commissioner Doug O’Donnell. “To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”
“The transition period described in Notice 2023-10PDF, delays the reporting of transactions in excess of $600 to transactions that occur after calendar year 2022. The transition period is intended to facilitate an orderly transition for TPSO tax compliance, as well as individual payee compliance with income tax reporting. A participating payee, in the case of a third-party network transaction, is any person who accepts payment from a third-party settlement organization for a business transaction.”
Treasury Department and IRS officials said Friday that they hope to work with industry groups over the next year to make sure the forms go to the right taxpayers, The Wall Street Journal reported.
Sen. Joe Manchin, D-W.V., said in a statement Friday: “I am pleased the Treasury Department and the IRS listened to my request to delay the 1099-K reporting requirement that will harm small businesses and individuals who sell goods online across America. This will allow Congress more time to correct this regulation that puts undue burden on our small businesses.”
Republican Sen. Rick Scott of Florida tweeted last week that “@JoeBiden’s IRS has NO BUSINESS spying on YOU or tracking YOUR Venmo & PayPal transactions.
The IRS also noted that the existing 1099-K reporting threshold of $20,000 in payments from over 200 transactions would remain in effect.