Feb. 22, 2024
WASHINGTON — Following feedback from taxpayers, tax professionals, and payment processors (and to reduce taxpayer confusion) the Internal Revenue Service released Notice 2023-74 late last year. In the notice, the IRS decided to delay the new $600 Form 1099-K reporting threshold for third party settlement organizations for calendar year 2023.
According to an agency press release, the IRS will continue to work to implement the new law, treating 2023 as an additional transition year. “This will reduce the potential confusion caused by the distribution of an estimated 44 million Forms 1099-K sent to many taxpayers who wouldn’t expect one and may not have a tax obligation,” wrote IRS officials. “As a result, reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023.”
Given the complexity of the new provision, the large number of individual taxpayers affected and the need for stakeholders to have certainty with enough lead time, the IRS is planning for a threshold of $5,000 for tax year 2024 as part of a phase-in to implement the $600 reporting threshold enacted under the American Rescue Plan (ARP).
Jessica Wright, director of Partnerships at Seller Labs (Booth #414 at the Prosper Show) said the news about the 1099-K reporting threshold was a pretty big deal. “I’m a member of a number of communities for smaller resellers who focus on flipping thrifted goods or other ventures that would typically be considered more hobby than business,” she said. “This news has brought a ton of chatter to the communities as sellers are expressing relief that they won’t have to justify their earnings as non-income or figure out how to navigate confusing tax filing processes, at least for one more year.
“This is based not on my experience with Amazon sellers, which is where most of my ‘day job’ news comes from, but more from the perspective of the ‘mom-prenuer,’ smaller homebased business or hobby sellers,” Wright continued. “I’d anticipate this news is making smaller headlines in the Amazon world where a seller needs to be making well over $600 a year to even justify opening a store.”
“This news is impactful because it will ease the requirements of a small business and make the transition to the new tax law easier,” added Ian Sells, CEO, Million Dollar Sellers (Booth #1127 at the Prosper Show). “Small businesses have enough to worry about so any improvement in reporting requirements is impactful.”
Following feedback from the tax community, the IRS is also looking to make updates to the Form 1040 and related schedules for 2024 that would make the reporting process easier for taxpayers. Changes to the Form 1040 series – the core tax form for more than 150 million taxpayers – are complex; delaying changes to tax year 2024 allows for additional feedback.
“We spent many months gathering feedback from third party groups and others, and it became increasingly clear we need additional time to effectively implement the new reporting requirements,” said IRS Commissioner Danny Werfel. “Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion as we continue to look at changes to the Form 1040. It’s clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area.”
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