Form 1099K: Policy & Preparation



On Dec. 23, 2022, just ahead of the 2023 tax filing season, the IRS announced it would delay implementation of a new Form 1099-K reporting threshold included in the American Rescue Plan Act of 2021 (ARPA). To briefly recap, Form 1099-K reporting was only required if an individual or retailer completed at least 200 transactions and earned more than $20,000 in revenue collected via third-party payment processors and e-commerce platforms. With the passage of ARPA, however, the $20,000 threshold was vastly reduced to $600, and the 200-transaction rule was eliminated completely for calendar year 2023. As the effective date of these changes approached in 2022, many tax advocacy organizations, including the AICPA, appealed to congressional leaders in a letter. Among other things, they expressed concerns over the potential for taxpayer confusion and further exacerbation of the processing backlog at the IRS during that time. The letter also included a suggestion to increase the 1099-K threshold from $600 to $5,000.

According to Bloomberg Tax, the current threshold of $600 was introduced in tax code originally created in 1954, and never adjusted for inflation. Indeed, the cost of living adjustment (COLA), when calculated on the U.S. Bureau of Labor Statistics online calculator, would raise the threshold to over $6,6401. Currently, there are multiple proposals calling for either a full reversion to 2022 thresholds or some form of increase. One such bipartisan proposal, the Red Tape Reduction Act, introduced by Senators Sherrod Brown (D-Ohio) and Bill Cassidy (R-La.), would raise the threshold to $10,000 and has gained the support of the AICPA, CNBC reports2. Even so, there has been little movement reported on this issue since mid-summer and, while last-minute policy enactment is certainly possible, taxpayers and CPAs should be prepared to confront Form 1099-K in its current form for the 2024 tax season.

Crucial to ensuring the coming tax season flows as smoothly as possible, CPAs should consider reaching out to their clients in advance regarding the possible receipt of a Form 1099-K, including those clients that are neither business owners nor involved in online retail. The predominant reason being, and among the prevailing causes of concern for tax advocacy groups, is that third-party payment processors cannot distinguish between business payments and personal payments when reporting transactions to the IRS on the 1099-K, TurboTax reports. A wedding gift of $500 via PayPal presents exactly the same as a sale in this context. Therefore, it is wise to advise clients to keep separate accounts on payment apps, such as PayPal, Venmo and CashApp, for personal and business purposes3.

For those clients already using their apps for both personal and business payments, Wolters Kluwer reports the IRS recommends adding a note to these transactions that reads “non-business” where possible. Otherwise, 1099-K forms received in error for non-business transactions will need to first be disputed with the issuer of the form, or “FILER,” as it is noted in the top left corner of the document. Further, clients should be advised to keep copies of all correspondence associated with each 1099-K issuer, including the original and corrected Forms 1099-K. When a corrected form cannot be obtained, tax professionals will want to report the correct amounts under the “Additional Income” portion of Schedule I, Line 8z. Further, the adjustment should likewise be recorded under “Other Adjustments” on Schedule I, Line 24z4. These steps are also available via recent guidance published by the IRS, including what to do if the gross payment amount on the form does not belong to the taxpayer for any of the following reasons:

  • The taxpayer is listed instead of the taxpayer’s business;
  • The taxpayer shared a credit card terminal with another individual or entity;
  • The taxpayer bought or sold the business during the tax year;
  • The business or entity underwent a tax ID change;
  • The businesses give cash back when customers use their debit or credit cards;
  • The taxpayer is processing payments from multiple business veins on one terminal.

As the end of the year approaches, the MICPA will continue to follow this issue closely. Stay tuned to our social media and enews channels for all the latest development associated with Form 1099-K and other pressing tax issues.

Want to learn more about 1099-K filing for the coming season? Join the MICPA for a 1099 Changes and Best Practices webinar.

  1. Phllips Erb, Kelly. “IRS Offers Up a Breather With Form…Bloomberg Tax. 29 Dec. 2022. Accessed on 21 Sept. 2023.
  2. Dore, Kate. “Lawmakers Weight Tax Rule ‘Backslide’ for Venmo, Paypal…CNBC. 20 Aug. 2023. Accessed on 21 Sept. 2023.
  3. Form 1099-K Decoded for the Self-Employed.TurboTax. 31 Aug. 2023. Accessed on 21 Sept. 2023.
  4. What Should and Shouldn’t Be Included…Wolters Kluwer. 3 Aug. 2023. Accessed on 21 Sept. 2023.

Source: MICPA

 Back to List