New Plan for Form 1099-K reporting on apps like PayPal

IRS plans to ease into changes to Form 1099-K reporting for payment apps. 

The IRS announced they are, once again, postponing the implementation of a rule that would result in millions more taxpayers receiving 1099-K tax forms from payment app and online marketplace transactions. 

Before the new rules, you received a Form 1099-K from payment processors to report: 

• All credit, debit, and gift card transactions 
• Payment apps or online marketplaces (like PayPal or eBay) payments over $20,000 AND 200 total transactions 

In 2021, the ARPA created a plan to expand the reach of the form 1099-K for payment apps and online marketplaces to improve tax compliance for those types of transactions. But just recently, the IRS created a new plan to smooth the transition. 

The updated plan for Form 1099-k reporting

The policy originally changed the threshold for 1099-K reporting to transactions totaling over $600. However, the IRS decided to delay this change due to the complexity of delivery and potential confusion for individuals who aren’t expecting to receive the form or won’t know what they need to do with it. 

Instead, they are planning to ease into this change to ensure a smooth transition. Taxpayers will still receive a form for anything over 200 transactions totaling at least $20,000. And, beginning in 2024, it was just announced that the threshold will decrease to $5,000 total with no transaction limits. The IRS plans to eventually lower the threshold to the originally intended $600 sometime down the road but intends to ease taxpayers into the changes and refine their own process. 

Advice for Form 1099-K Recipients 

If you happen to receive Form 1099-K and it falls within the current thresholds, make sure to take a close look at it to ensure the amounts are accurate. It’s also important to keep an eye out for any deductible expenses that you can potentially claim on your tax return. This can help maximize your deductions and potentially lower your tax bill. 

Additionally, be careful not to double report income. You may receive a 1099-K and another IRS form for the same transaction. Be sure to only count it once towards your total taxable income. For a similar reason, avoid using your business payment apps for personal transactions. The companies that deliver 1099-K forms, like PayPal, may not be able to tell the difference between business transactions and personal, non-taxable ones.  

The rules are still the same. 

It’s important to note that the delay in the implementation of the new Form 1099-K threshold doesn’t change the requirement for taxpayers to report all taxable income. Regardless of whether a taxpayer receives a Form 1099-K, all income is taxable unless excluded by law. 

For any questions about Form 1099-K or any other tax-related inquiries, please contact a member of our tax team. We are here to assist you!