A New Form 1099-K Reporting Threshold is Coming

Under the American Rescue Plan (ARP), the IRS plans to lower the Form 1099-K reporting threshold for third-party platform payments. The new threshold was set to be $600 and was originally intended to start in 2023. However, due to difficulty with these reporting requirements, the IRS has announced that the start of this new rule is delayed and will be rolled out using transitional years. The current threshold for reporting for third-party settlement organizations starts at $20,000 or 200 transactions depending on which occurs first. At that point, the third-party settlement organizations must issue a Form 1099-K. The cut from $20,000 to $600 is a significant change that will result in a surplus of small-business owners, people with part-time jobs, etc. to be issued a Form 1099-K unexpectedly. To accommodate these changes, the IRS will be lowering the threshold to $5,000 for the 2024 tax year. This will allow the IRS to work out the complications of distinguishing between taxable and nontaxable payments sent through these organizations and to make the reporting process as easy as possible for all involved. To prepare for this, business owners should set aside around 20% of their untaxed revenue to prepare for a potential tax liability.