Navigating Changes: New Reporting Rules for Form 1099-K in the 2023 Tax Year
The end of the year is nearing and that means many businesses and tax professionals around the country can feel the year-end tax filing deadlines looming in the distance. Now is the ideal time for these businesses to address their filing requirements for the coming tax season and get ahead of the game to plan for any changes to these reporting requirements.
While there aren’t often major changes to 1099 reporting requirements for business owners and tax professionals to contend with, the upcoming tax season is proving to have many major changes on the horizon.
One of the biggest challenges filers will face this year is the reporting changes to 1099-K, Payment Card and Third Party Network Transactions.
What is Form 1099-K?
While the Form 1099-K is not a new tax form, it is definitely getting its “15 minutes of fame” these days due to the new requirements. Form 1099-K is a variant in the 1099 series of forms used to report electronic payments made using a credit card or a third-party payment network.
Companies that offer popular services related to food delivery, ride-sharing, and applications that allow you to easily send electronic payments- these are the types of companies that will need to report transactions on 1099-K.
These companies are typically referred to as Online Marketplaces, Payment Settlement Entities (PSE) and Third Party Settlement Organizations.
What are the New Reporting Rules for 1099-K?
Let’s get started with what the IRS used to require on
The previous requirements for filing Form 1099-K:
- Transactions exceeding $20,000 were required to be reported on 1099-K.
- If there were more than 200 translations completed during the year, they needed to be reported on 1099-K.
These are the new reporting Form 1099-K threshold
- All transactions made for goods and services exceeding $600, regardless of the number of transactions completed must be reported on 1099-K.
As you can see this is a notable difference, and the result will be a major uptick in the transactions that must be filed with the IRS. This will also create an uptick in the number of 1099-K forms that are received by recipients for their own personal tax filing.
What kinds of transactions aren’t included in the reporting requirements?
This is a great question; with all of the transactions that must now be reported, this could blur the line on what’s required. According to the IRS, some examples of payments that are not included in the 1099-K requirement are:
- The money you receive from friends and family as a gift
- The money you receive as reimbursement for meals, sharing a car ride, chipping in on a friend’s birthday, etc.
- Paying a roommate back for a household bill or expense.
When to File 1099-K and When Not to File: Examples
Example 1: Gig Workers
Let’s say you own a company that focuses on gig workers. You use online payment cards to make payouts to your gig workers.
At the end of the year, you must file a 1099-K for each gig worker to whom you paid a total of $600 or more.
However, if the payments are made as cash or check, you must file Form 1099-NEC to report those payments, not 1099-K.
Example 2: Online Marketplace
You own an online rental platform where businesses can list their cars and make them available for rent.
Generally, Form 1099-MISC is used to report the payments made as rent. But, in this case, you are required to file Form 1099-K for the businesses that received payments in excess of $600 since you are an online marketplace.
When does this reporting rule go into effect?
This rule was originally meant to go into effect for the 2022 tax year. However, in December, the IRS decided to postpone the new reporting rule. The rule will go into effect for the 2024 calendar year. The rule will apply to the 1099 filing for the tax year 2023 which is due on January 31, 2024.
Paper-Filing vs. E-filing Form 1099-K for tax year 2023
Let’s discuss another major change that business owners and tax professionals will face in the coming tax season. This is the e-filing thresholds for 2024 – the requirement for electronic filing of information returns is changing drastically. For the 2024 calendar year, the number of forms that a business can file paper copies of with the IRS is being drastically reduced.
This will also affect year-end reporting for the 2023 tax year in January. Businesses will only be able to file a total of 10 paper forms. Please note: this is not 10 of each form type, but rather it is a collective number of all forms. This change in filing requirements will lead to even the smallest businesses needing to file forms electronically.
Get Ahead of your Tax Season with TaxBandits!
TaxBandits offers a streamlined e-file solution for 1099 Forms, including the 1099-K. We also offer e-filing solutions for other major tax returns, such as Form W2, ACA 1095s, 941, 940, 941 Schedule R, and more!
In addition to helping your organization keep up with the new reporting rules for 1099-K and the new e-filing requirements, we also help you complete your recipient copy distribution requirements. With TaxBandits you can easily opt-in to postal mailing and online access services, your addresses are even validated using USPS records to ensure that they arrive at a verified address.
You can also save time with bulk upload options and prepaid credits. Payroll providers, payment settlement entities, and CRMs can even take advantage of TaxBandits API to automate their W-9 and 1099 e-filing.
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