Tax Highlights

IRS announces 2023 Form 1099-K reporting threshold delay for third party platform payments; plans for a $5,000 threshold in 2024 to phase in implementation

Following feedback from taxpayers, tax professionals, and payment processors and to reduce taxpayer confusion, the Internal Revenue Service delayed the new $600 Form 1099-K reporting threshold requirement for third party payment organizations for tax year 2023 and is planning a threshold of $5,000 for 2024 to phase in the new law.

Third party payment organizations include many popular payment apps and online marketplaces.

The agency is making 2023 another transition year to implement the new requirements under the American Rescue Plan that changed the Form 1099-K reporting threshold for payments taxpayers get selling goods or providing a service over $600. The previous reporting thresholds will remain in place for 2023.

What this means

This means that for 2023 and prior years, payment apps and online marketplaces are only required to send out Forms 1099-K to taxpayers who receive over $20,000 and have over 200 transactions. For tax year 2024, the IRS plans for a threshold of $5,000 to phase in reporting requirements.

This phased-in approach will allow the agency to review its operational processes to better address taxpayer and stakeholder concerns.

Taxpayers should be aware that while the reporting threshold remains over $20,000 and 200 transactions for 2023, companies could still issue the form for any amount.

It’s important to note that the higher threshold does not affect the actual tax law to report income on your tax return. All income, no matter the amount, is taxable unless it’s excluded by law whether a Form 1099-K is sent or not.

Who gets the form

The Form 1099-K could be sent to anyone who’s using payment apps or online marketplaces to accept payments for selling goods or providing services. This includes people with side hustles, small businesses, crafters and other sole proprietors.

However, it could also include casual sellers who sold personal stuff like clothing, furniture and other household items that they paid more than they sold it for. Selling items at a loss is not actually taxable income but would have generated many Forms 1099-K for many people with the $600 threshold.

This complexity contributed to the IRS decision to delay the additional year to provide the agency time to update its operations to make it easier for taxpayers to report the amounts on their forms.

What to do

The IRS Understanding your Form 1099-K webpage provides resources for taxpayers who receive a 1099-K, including what to do with a Form 1099-K and what to do if you get a Form 1099-K in error.

Taxpayers who receive a Form 1099-K should review the forms, determine if the amount is correct, and determine any deductible expenses associated with the payment they may be able to claim when they file their taxes.

The payment on a Form 1099-K may be reported in different places on your tax return depending on what kind of payment it is. For example, someone who is getting paid as a ride share driver could report it on a Schedule C.

People who sold personal items must determine if the amounts on their forms were losses or gains. If taxpayers are unsure of the original price, they can learn more on how to figure out the items worth and how to establish basisPDF.

Selling personal items at a loss

If taxpayers sold at a loss, which means they paid more for the items than they sold them for, they’ll be able to zero out the payment on their tax return by reporting both the payment and an offsetting adjustment on a Form 1040, Schedule 1. This will ensure people who unnecessarily get these forms don’t have to pay taxes they don’t owe.

Specifically:

If you sold personal items at a loss, you have 2 options to report the loss:

Report on Schedule 1 (Form 1040)

You can report and then zero out the Form 1099-K gross payment amount on Schedule 1 (Form 1040), Additional Income and Adjustments to IncomePDF.

Example: You receive a Form 1099-K that includes the sale of your car online for $21,000, which is less than you paid for it.

On Schedule 1 (Form 1040):

• Enter the Form 1099-K gross payment amount (Box 1a) on Part I – Line 8z – Other Income: “Form 1099-K Personal Item Sold at a Loss, $21,000”
• Offset the Form 1099-K gross payment amount (Box 1a) on Part II – Line 24z – Other Adjustments:“Form 1099-K Personal Item Sold at a Loss $21,000”

These 2 entries result in a $0 net effect on your adjusted gross income (AGI).

Report on Form 8949

You can also report the loss on Form 8949, Sales and Other Dispositions of Capital Assets, which carries to Schedule D, Capital Gains and Losses.

Selling personal items at a gain

If they were sold at a gain, which means they paid less than they sold it for, they will have to report that gain as income, and it’s taxable.

If you receive a Form 1099-K for a personal item sold at a gain, report it on both:

• Form 8949, Sales and other Dispositions of Capital Assets
• Schedule D (Form 1040), Capital Gains and Losses

What should not be reported

Reporting is not required for personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill. These payments are not taxable and should not be reported on Form 1099-K.

Additional information and resources

The IRS provides comprehensive information on the Understanding your Form 1099-K webpage that includes more details on receiving and reporting Forms 1099-K to help taxpayers navigate this complicated issue. In addition, the IRS will continue to update its communications, providing additional details soon.