New 1099 Reporting Requirements

[CigarMan]

Hi all, I wanted to share so we can start working with the ladies to make appropriate arrangements to deal with the new reporting requirements.  In sort, payments made through various pay sites will be reported to the IRS and it will be up to the receiving to report the amounts on their tax returns.
The new 1099 reporting requirements have undergone some changes recently. Here's a summary of the current status:

Form 1099-NEC: This form must be filed by January 31, 2024, for nonemployee compensation.
Form 1099-MISC: This form must be filed by February 28, 2024, if filing on paper, or by March 31, 2024, if filing electronically.
Form 1099-K: The IRS has delayed the implementation of the $600 reporting threshold. For 2024, the threshold is set at $5,000, which will be reduced to $2,500 in 2025, and finally to $600 in 2026.
Tax reporting requirements for online marketplace sellers and gig workers who receive payments via apps like PayPal and Venmo will change dramatically in 2026 when the new $600 Form 1099-K reporting threshold finally kicks in.

The IRS announced additional transition relief on Nov. 26 for payment apps and e-commerce marketplaces, referred to by the agency as "third-party settlement organizations" (TSBO), before the $600 threshold goes into effect. According to the IRS, TSBOs will be required to report transactions when the amount of total payments for those transactions is more than $5,000 in 2024, more than $2,500 in 2025, and more than $600 in calendar-year 2026 and beyond.

Implementation of the $600 reporting threshold was delayed in December 2022 and again last November by the IRS to try to alleviate confusion around the new reporting rules, which were enacted by the American Rescue Plan Act in 2021 as a way for the U.S. government to collect additional taxes from business owners or those with a side hustle who receive payments via a third-party payment processor.

Online shopping sites, such as Etsy and eBay, and payment network PayPal, among other companies, had urged lawmakers to change the new $600 reporting threshold for Form 1099-K; however, legislation to repeal the new reporting threshold hasn't yet been passed in Congress.

Previously, to receive a 1099-K, Payment Card and Third Party Network Transactions, an online seller had to have at least 200 third-party payment network transactions totaling more than $20,000 in gross payments. Under the new rules, which removed the transaction quantity requirement, a single transaction on a payment network of just $600 can trigger a 1099-K. These requirements even pertain to reselling concert tickets.

Around this time last year, the IRS said it would treat 2023 as an additional transition year, which "will reduce the potential confusion caused by the distribution of an estimated 44 million Forms 1099-K sent to many taxpayers who wouldn't expect one and may not have a tax obligation. As a result, reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023."

The agency said last November that it was planning for a reporting threshold of $5,000 for tax year 2024 before phasing in the $600 reporting threshold.

"Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion as we continue to look at changes to the Form 1040," IRS Commissioner Danny Werfel said last November. "It's clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals, and others in this area."

Notice 2024-85, which was issued earlier today by the IRS, also announces that for calendar-year 2024, the IRS won't assert penalties under section 6651 or 6656 for a TPSO's failure to withhold and pay backup withholding tax during the calendar year.

TPSOs that have performed backup withholding for a payee during calendar-year 2024 must file a Form 945, Annual Return of Withheld Federal Income Tax, and a Form 1099-K with the IRS and provide a copy to the payee, according to the IRS.

For calendar-year 2025 and after, the IRS will assert penalties under section 6651 or 6656 for a TPSO's failure to withhold and pay backup withholding tax.

Notice 2024-85 specifically states:

Calendar year 2024 will be regarded as a further transition period for purposes of IRS enforcement and administration of the information reporting requirements under section 6050W(e), as amended by the ARP [American Rescue Plan]. For calendar year 2024, a TPSO is not required to report payments in settlement of third party network transactions with respect to a participating payee unless the gross amount of aggregate payments to be reported exceeds $5,000, regardless of the number of such transactions. The IRS will not assert penalties under section 6721 or section 6722 for a TPSO for failing to file or failing to furnish Forms 1099-K with respect to a payee unless the gross amount of aggregate payments to be reported exceeds $5,000, regardless of the number of such transactions.

In addition, calendar year 2025 will be regarded as the final transition period for purposes of IRS enforcement and administration of the information reporting requirements under section 6050W(e). For calendar year 2025, a TPSO is not required to report payments in settlement of third party network transactions with respect to a participating payee unless the gross amount of aggregate payments to be reported exceeds $2,500, regardless of the number of such transactions. The IRS will not assert penalties under section 6721 or section 6722 for a TPSO for failing to file or failing to furnish Forms 1099-K with respect to a payee unless the gross amount of aggregate payments to be reported exceeds $2,500, regardless of the number of such transactions.

For Forms 1099-K for calendar years beginning after December 31, 2025, a TPSO is required to report payments in settlement of third party network transactions with respect to any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the number of such transactions.

The IRS will not regard calendar year 2024 or 2025 as a transition period with respect to the requirements of section 6050W that were not modified by section 9674(a) of the ARP, such as provisions relating to payment card transactions.

"The transition period described in this notice is intended to facilitate an orderly transition for TPSO compliance with section 6050W(e) and participating payee compliance with income tax reporting," the IRS says in the notice.

[Valida]

A clarifying question about "aggregate..." in that piece. 

After the $600 threshold goes into effect:- 

Is it the case that, for example, CashApp payments of $591 to one recipient and $10 to a second recipient, with no other CashApp transactions during the year, will trigger the $600 threshold requirement?  Then the payer (me) would be required to send a 1099-K for each recipient, even the $10 one?  (Aggregating per payER)

Or is it the case that, for a different example, someone receiving CashApp payments from two payers of $350 each, with no other CashApp transactions during the year, will get a 1099-K from each of the two payers?  (Aggregating per payEE)  If so, how will a $350 payers (who do not know of the other payment(s) to that payee) will know he needs to file a 1099-K? 

Or will CashApp be the one to generate, file, and deliver the 1099-K forms? 

Or is the aggregation done in some other way? 

Thank you if you can clarify this. 

[dogwalker]

Recipients of payments get the 1099-Ks and those will be issued by the app companies not individual people that initiate a cash transfer.
individuals are not considered to (directly) be the payers....the apps are.
When any single app transfers more than whatever the dollar limit is to a recipient then they are required to send a 1099-K to the recipient and then (since that amount is also reported to the IRS) the recipient would be expected to file a tax return indicating that since it may be income (or not).
You can transfer all you want.  You will not be taxed on it and for sure would not have to send 1099-K's to the recipients because for one thing these are often anonymous transfers and only the apps would have any personal information like a recipient's physical or e-mail address in order to send a 1099 form.
All this is modeled on 1099-MISC, -INT, -DIV guidelines and forms sent to receivers of interest, dividends, or capital gains so I find it useful to think of these new rules in that context.
For example if you earn interest over a certain amount from any bank then that bank (not payers of loans from which interest may indirectly come from) sends you a 1099-INT form indicating that amount.  It's income and the IRS expects taxes to be paid on it.  It's not the total amount of interest you make in a year that determines whether a 1099 needs to be issued or whether that income is reportable to the IRS. This is because one bank has no idea what another bank has paid you.  It's how much each individual bank pays.  Same with cash app transfers and form 1099-K.

[Valida]

Thank you, that clears it up for me.