1099-K form reporting: Impact on Venmo and PayPal

In late December 2022, the IRS announced a delay in reporting thresholds for third-party settlement organizations (TPSOs) set to take effect for tax year 2022. As a result of this delay, TPSOs will not be required to report tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the lower $600 threshold amount enacted as part of the American Rescue Plan of 2021. Well-known third-party settlement organizations (TPSOs) include Venmo, PayPal and CashApp.

What does this mean for your clients? According to the IRS, for tax year 2022, the existing 1099-K reporting threshold of $20,000 in payments from over 200 transactions will remain in effect. The IRS guidance outlining that calendar year 2022 will be a transition period for implementation of the lowered threshold reporting for TPSOs that would have generated Form 1099-Ks for taxpayers.

The American Rescue Plan of 2021 changed third-party payment processors’ reporting requirements to payments processed exceeding $600, down considerably from the original more than 200 transactions per year and exceeding an aggregate amount of $20,000 reporting requirement.  This meant your clients would receive a Form 1099-K for payments processed for goods and services that exceed $600. The law is not intended to track personal transactions, such as sharing the cost of a car ride or meal, birthday or holiday gifts, or paying a family member or another for a household bill.

Under the law, beginning Jan. 1, 2023, a TPSO is required to report third-party network transactions paid in 2022 with any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the number of transactions. TPSOs report these transactions by providing individual payee’s an IRS Form 1099-K, Payment Card and Third-Party Network Transactions.

The transition period announced delays the reporting of transactions in excess of $600 to transactions that occur after calendar year 2022. The IRS will issue Form 1099-K to taxpayers who have $20,000 in payments from more than 200 transactions processed in tax year 2022. The transition period is intended to facilitate an orderly transition for TPSO tax compliance, as well as individual payee compliance with income tax reporting. A participating payee, in the case of a third-party network transaction, is any person who accepts payment from a third-party settlement organization for a business transaction.

Additional details on the delay will be available in the near future, along with additional information to help taxpayers and the industry. For taxpayers who may have already received a 1099-K as a result of the statutory changes, the IRS is working rapidly to provide instructions and clarity so that ou and your clients will understand what to do.