IRS Delays $600 Reporting Threshold for E-Commerce and Third-Party Payment Platforms

The $1.9 trillion American Rescue Plan of 2021 included a provision requiring third-party settlement organizations to issue Form 1099-K based on a much lower $600 transaction threshold on platforms like PayPal, eBay, Etsy, Venmo and CashApp. The measure is intended to report smaller payments made in exchange for goods and services.

Despite a low reporting threshold, lawmakers maintain that the measure was not implemented to track personal transactions like sharing the cost of a car ride or meal, gifts, or paying a family member or another for a household bill. A spokesperson from PayPal added that payments must be sent as 'goods and services' to be considered under the reporting threshold rule.

Anticipating an already nasty tax filing season, tax preparers and taxpayers can breathe a sigh of relief knowing that the $600 reporting threshold will become effective for transactions recorded after December 31, 2022, instead of all transactions in 2022.

What is the current reporting threshold?

Before the signing of the American Rescue Plan, e-commerce platforms were only required to send 1099-K forms to entities that earned $20,000 in payments from over 200 transactions. With the delay in new reporting requirements, the IRS will stick with that current policy for the upcoming filing season.

Why is the new rule being delayed?

The lowered threshold reporting requirements for third-party settlement organizations (TPSOs) faced heavy criticism and opposition from many lawmakers who wanted to repeal it before the bill was signed into law to no avail. After hearing a number of concerns regarding the timeline of implementation, the IRS and the Treasury elected to delay the reporting requirement at the lower threshold to allow for a smoother transition for all parties.

The delay will allow TPSOs to improve systems and enable them to better understand which transactions are reportable on Form 1099-K and will help reduce confusion during the upcoming tax filing season. Taxpayers will have more time to understand how the new reporting threshold applies, and tax preparers and software providers will have more time to ensure they have the information necessary to assist taxpayers.

File early to avoid major headaches

We’ve always advised clients to file their taxes as soon as possible, and that advice still rings true. Tax season has been a stressful time for businesses, especially with everything that has happened over the last couple of years. New credits, late changes, mail backlogs at the IRS, and an increase in tax fraud schemes have created a couple of messy tax filing seasons. Filing early is the best way to mitigate most issues.