For 2024, the IRS is planning to start implementing its new reporting requirement for those receiving 1099-K forms, including anyone who earns income through third-party apps.
The rule was delayed for 2023, meaning that taxpayers who are filing their returns in the coming months don’t have to adhere to the 1099-K reporting. The agency also delayed the rule in 2022.
After this year ends, the 1099-K form “could be sent to anyone” using those payment services, apps, and online marketplaces to accept payments.
Originally, app users who made $600 or more selling goods and services via services like CashApp, Zelle, PayPal, Venmo, and others would have been required to report those transactions to the IRS, a new threshold required by the American Rescue Plan passed in March 2021.
Instead, payment apps and online marketplaces will send out separate tax forms—called 1099-K documents—for taxpayers who receive over $20,000 and make over 200 transactions selling goods or services. For 2024, the basic reporting threshold will be increased from $600 to $5,000, the IRS said.
IRS officials say one reason for the delay is taxpayer confusion over what sorts of transactions are reportable. For instance, peer-to-peer transactions, like selling a couch or car, sending rent to a roommate, and buying concert tickets, would not be reportable, whereas other purchases would apply.
“Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion,” Mr. Werfel said. “It’s clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area.”
A provision in the American Rescue Plan requires users to report transactions through payment apps, including Venmo, Cash App and others, for goods and services meeting or exceeding $600 in a calendar year. Before that provision—and now for this year—the reporting requirement applied only to selling goods and services to taxpayers who received over $20,000 and had over 200 transactions.
“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,” the IRS said. “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.”
“Reporting requirements do not apply to 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,” the agency added.
There has been confusion about what taxpayers should do if they sell an item at a loss. Those scenarios shouldn’t be taxed but may still generate forms to send to taxpayers.
“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,” the agency said.
Starting this month, the IRS will plan a phased rollout of the plan and will require third-party payment apps and services to report business and freelancer earnings of more than $5,000 rather than $600, according to the IRS.
“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,” said the agency.
