The Internal Revenue Service (IRS) recently announced a delay in the reporting threshold for third-party settlement organizations (TPSOs) originally planned to take effect in the coming tax filing season. As a result, these organizations, such as Venmo and Paypal, will not need to report transactions from tax year 2022 on a Form 1099-K, Payment Card and Third-Party Network Transactions to the IRS or the payee if they’re under the $600 threshold, enacted last year by the American Rescue Plan (ARP). The delay is intended to help the transition go smoothly for TPSO tax compliance and individual payee compliance with income tax reporting.  

The guidance states that the 2022 calendar year will be a transition period for implementing the lowered-threshold reporting for TPSOs that would have typically generated Form 1099-Ks for taxpayers. The existing threshold is greater than 200 transactions per year, exceeding an aggregate amount of $20,000, which will remain in effect. This does not include personal transactions, such as sharing the costs of car rides, meals or gifts.  

Starting on Jan. 1, 2023, TPSOs are required to report their third-party network transactions paid in 2022 with any participating payee exceeding a minimum threshold of $600 in aggregate payments, no matter the number of transactions. Participating payees are considered any individual who accepts payment from a TPSO for a business transaction. 

This change is important, as tax compliance increases when amounts are subject to information reporting, such as the Form 1099-K. The IRS noted the change must be managed carefully to ensure the forms are provided to taxpayers who should receive them. It’s also important for taxpayers to understand how the change in reporting will affect them. 

Further details on the delay are expected in the near future, including instructions for taxpayers who already received a 1099-K.  

Businesses leveraging TPSOs should plan now to ensure they have the appropriate documentation that may be necessary when filing for the 2023 filing year. For more information, contact Doeren Mayhew’s tax advisors today.