IRS updates 1099-K guidance for tax season

The Internal Revenue Service revised its frequently asked questions on the Form 1099-K to alleviate confusion this filing season.

The Form 1099-K has been of particular concern in recent years after the threshold for reporting transactions from payment cards and third parties like eBay, Venmo, PayPal and Airbnb was lowered from $20,000 to $600 as a result of the American Rescue Plan Act of 2021. That was expected to produce millions more 1099 forms being sent last year to unsuspecting taxpayers, but the IRS has moved to delay the requirement for two years in a row and proposed last year to phase in the lower threshold at $5,000 this year, although some lawmakers in Congress have questioned the IRS's authority to do that without a change in the law. 

To reduce the uncertainty about the requirements, the IRS posted a new fact sheet Tuesday revising and updating the frequently asked questions regarding the 1099-K. The revised FAQs include guidance on common situations, along with more clarity for industry and which organizations should send Forms 1099-K. In addition, the IRS recently updated the Understanding your Form 1099-K page on IRS.gov page and other communications resources.

Samuel Corum/Bloomberg

After hearing feedback from taxpayers, tax professionals and payment processors, and to reduce taxpayer confusion, the IRS issued Notice 2023-74 last November to delay the new $600 Form 1099-K reporting threshold for third party settlement organizations for calendar year 2023.

The IRS is still working to implement the new law, but it's treating 2023 as another transition year. As a result, 1099-K reporting won't be required unless a taxpayer receives over $20,000 and has more than 200 transactions in 2023, although taxpayers may still receive a form for amounts less than the required reporting amount.

The updates to the FAQs contain substantial changes within each section:

• General Information;
• What to Do If You Receive a Form 1099-K;
• Common Situations;
• Third Party Filers of Form 1099-K; and
• Should My Organization Be Preparing, Filing and Furnishing Form 1099-K?