One of the significant changes affecting next year's filing season is the provision in the American Rescue Plan Act lowering the minimum reporting threshold for payment card transactions (debit, credit, or stored-value cards). For calendar years prior to 2022 the form was required to be issued for payments that exceeded $20,000 if there were more than 200 such transactions. The ARPA changed this: For returns for calendar years after 2021, the form must be provided for gross payments for goods or services that exceed $600, with no minimum number of transactions.
For transactions made after March 11, 2021, the ARPA clarifies that Form 1099-K reporting by third-party settlement organizations applies only for transactions for the provision of goods or services settled through a third-party payment network.
Naturally, the provision magnifies the sheer volume of 1099-Ks required to be issued and processed. And there's a growing feeling that both the Internal Revenue Service and the private sector need more time to prepare. In a letter to the chairs and ranking members of the House Ways and Means Committee and the Senate Finance Committee, Roger Harris, president of Padgett Business Services, asked that the change be postponed.
"On behalf of the thousands of small-business clients, I am writing to request that Congress delay the implementation of a recent change in the American Rescue Plan that triggers a 1099-K for gross payments for goods or services exceeding $600," he wrote. "The continued implementation of this change, without more preparation by both the IRS and the private sector, as well as additional consideration by Congress, could have negative and unintended consequences for millions of taxpayers."
"We have seen first-hand the negative impact that legislative changes can have on small businesses and other taxpayers when there is not thorough outreach to taxpayers and a focus on not overcomplicating implementation," the letter continued. "Effective this year, the provision in the ARPA requires online businesses that process payments to send the Form 1099-K to anyone receiving an aggregate of $600 or more with no minimum number of transactions. Before this change was enacted, businesses such as PayPal or Venmo were required to send Form 1099-Ks to sellers who exceeded 200 transactions and $20,000 in income annually. With tax season just around the corner, we are calling on Congress to delay the enactment of this revised requirement by two years. Implementing the lower threshold without more time will put a large strain on American taxpayers, payment processors, and the entire tax administration system."
Harris believes that by delaying the effective date of the new requirement to Jan. 1, 2024, Congress would allow the IRS as well as the private sector more time to develop systems and potential form changes that would make the new reporting requirement easier for taxpayers.
"For example, the IRS could develop a box on the tax form that taxpayers can check to declare all their online transactions non-taxable, as there is currently confusion, due to a lack of details, over how to report these transactions," he said.
"Congress should also use the time provided by a two-year delay to reconsider the threshold of $600 for when the requirement to send a Form 1099-K kicks in," he added, noting that many in the small-business community feel the new threshold is much too low. "Perhaps adjusting the threshold to a more reasonable level, such as $5,000, would allow Congress to achieve its initial goals of tax compliance while not putting an unfair burden on small businesses, individuals, and our tax administration system."
There is a potential for many people to receive a Form 1099-K without knowing what it's for, Harris suggested: "Many will ignore it or won't know how to report it. Or they might think they don't have to report it because they didn't have any income associated with it. The IRS has to tell me where to put it on my return so they can find it. If I ignore it, they have to send me a notice to tell me to report it, and how do I report it if it's not a taxable event?"
Harris believes that a delay in implementation would allow for more clarity around the threshold change, either in the form of guidance from the IRS or with an adjustment from Congress. "For the last few years, taxpayers have felt an enormous burden when it comes to the IRS and the tax filing season. By extending the effective date, Congress can help lessen the burden taxpayers have been feeling so heavily."
